The National Bank of Ukraine (NBU) has changed the forecast of the real effective exchange rate (REER) index of the hryvnia for the third-fourth quarter of 2021 to 1.24 and 1.26 respectively (the value for the fourth quarter of 2016 is taken as the base) compared to from 1.20 and 1.21 in the April forecast.
“Higher, in comparison with the countries-main trading partners, inflation in Ukraine will predetermine the revaluation of the REER hryvnia and worsen the competitiveness of Ukrainian goods. However, the decline in inflation in subsequent years will slow down the trend towards strengthening the REER to acceptable levels,” the NBU said in the Inflation Report posted on its website.
According to the report, in the first quarter of 2022, the REER index will grow to 1.30 and will remain approximately at this level throughout the year.
“The upward trend is consistent with fundamental factors, which is also confirmed by the forecast current account deficit close to a sustainable level. Thus, the hryvnia REER will not deviate significantly from its equilibrium level and will not create imbalances,” the NBU said.
In the first half of 2023, the National Bank expects a slight increase in the REER index, to 1.33-1.34 with a return to 1.31 in the second half of the year.
The NBU said that since the end of 2016, the REER reached its highest value – 1.31 – in the fourth quarter of 2019, but a year later it dropped to 1.16.
As reported, the NBU downgraded the inflation forecast for 2021 from 8% (in the April forecast) to 9.6% and expects it to return to 5% by the end of 2022.
