The National Bank of Ukraine has devalued the hryvnia against the dollar by 25% on July 21. The new official rate is Hr 36.57 per dollar.
The previous rate of Hr 29.25, established in February at the start of the invasion, "no longer corresponds to reality and is losing its role as an anchor for expectations," according to NBU governor Kyrylo Shevchenko.
Currency exchanges in Ukraine have been selling dollars for Hr 35 and above for some time now.
The bank said the devaluation will improve the competitiveness of Ukrainian manufacturers, enterprises, converge exchange conditions for different businesses and households and support economic resilience during the war. Shevchenko said the new rate will become an anchor for the economy.
"Keeping the exchange rate fixed will enable the NBU to maintain control over inflation dynamics and support uninterrupted functioning of the financial system," he stated. "This is the key condition for the stable operation of the economy, which is vital during the war."
The bank added that the devaluation should reduce currency speculation and improve foreign currency inflows by exporters.
The change is expected to drive up prices and contribute to inflation, deputy governor Serhiy Mykolaichuk said at a news conference.
According to the NBU, inflation has already hit 21.5% year-over-year due to the war’s economic shocks, which disrupted supply chains, drove up business costs and destroyed production lines and infrastructure. The bank expects inflation to rise just over 30% this year.
The economy is expected to shrink by at least third this year, while the World Bank expects a decrease of 45%. In 2021, the State Statistics Service estimated that real GDP grew by 3.4%
Meanwhile, the central bank decided to leave its key interest rate at 25%, expecting to maintain it at that level until the second quarter of 2024. The rate was hiked to 25% from 10% on June 2.
A day before the devaluation, Ukraine asked its creditors to agree to a two-year freeze on foreign debt repayments. Creditors have until Aug. 9 to vote on the proposal.
The NBU also put in several new regulations to try to reduce the use of international reserves. It limited cash withdrawals from hryvnia accounts abroad to Hr 12,500 per week.
P2P transfers from Ukraine abroad, using hryvnia accounts, have been reduced to Hr 30,000 from Hr 100,000 per month. And a monthly limit of Hr 100,000 has also been imposed on all payments outside Ukraine from hryvnia-based accounts.
The NBU also allowed banks to sell up to Hr 50,000 in cashless currency for the purpose of depositing it for at least three calendar months.