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CEO of the investment company

Concorde Capital


August 2019

02:28 PM

Igor Mazepa: Can the hryvnia exchange rate repeat the falls of 1998 and 2008?

Igor Mazepa, CEO of Concorde Capital investment company, comments whether the hryvnia exchange rate can repeat the falls of 1998 and 2008

The hryvnia strengthens when supply of foreign currency exceeds demand. Obviously, the main source of “excess” supply on the market became foreign currency that non-residents brought to Ukraine with the goal of buying Ukrainian bonds denominated in hryvnias. Only in July, the amount of Ukrainian bonds in the portfolios of non-residents grew by UAH 17.8 bln. It has swelled by UAH 17.8 bln since the year’s start – comments Igor Mazepa.


On the other hand, the situation with the current account of the balance of payments in the 2019 first half was relatively positive. Import growth rates were moderate, while agrarian exports supported the growth of overall exports at a solid level – says Igor Mazepa.


The current level of interest rates, amid conditions of a stable or strengthening hryvnia, makes Ukrainian bonds a very fortuitous investment. Regardless of the Finance Ministry reducing rates for quite an extended time, the interest of non-residents in buying Ukrainian paper has not fallen. Such a situation can fully continue for some time, and revaluation pressure can be maintained.


Today alone, the hryvnia will strengthen to less than UAH 25/USD.


Concorde Capital analytics expect a significant weakening of the hryvnia in the fourth quarter – continues Igor Mazepa. In the second half this year, traditional growth in the trade deficit will occur. Other than that, a new political cycle will begin and investors will become more careful. It can’t be ruled out that non-investors could find dangerous signals in the actions of the new government, and that will lead to reduced volumes of their Ukrainian bond purchases, or even a complete halt. No matter what happens, Ukraine is a country with high investment risk, and limits on buying the paper of such countries among foreign investors usually close very quickly if there is a risk that something doesn’t go as it should – says Igor Mazepa.  


In comparing the current situation with 2008, it can never be denied that the situation on the ForEx already looks a bit volatile. The problem is that the current excess supply in foreign currency is predominantly related to only a single source. As mentioned earlier, this source can quickly vanish and the situation can immediately turn around. If the reversal is swift, this can cause a reaction of panic in the market, which will lead to a high pace of devaluation.

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