The dollar has stalled, the euro continues to fall: KIT Group analysts tell what will happen to the exchange rate
Kyiv • UNN
An increase in the tax burden on bank deposits and businesses could become a powerful driver for destabilizing the hryvnia exchange rate due to rising demand in the foreign exchange market.
This is predicted by analysts of one of the largest Ukrainian currency exchange market operators, KIT Group, UNN reports.
"The changes will increase the tax burden on savings and further reduce the already unattractive yield on bank deposits. Ukrainians will be forced to look for alternative ways to save money with minimal tax liabilities, which may become a driver for transferring savings from bank deposits to cash or even crypto assets," the experts commented.
An increase in tax rates for businesses may also cause a surge in demand for foreign currency, in particular due to an increase in cash transactions as a result of the projected partial shadowing of businesses and/or certain business transactions.
"Both factors can have a significant impact on increasing the demand for currency and the scale of its shadow circulation, which can bring imbalances to the foreign exchange market. However, these factors will not manifest themselves simultaneously due to the significant inertia in the deposits and business sectors, which show statistically significant effects with an interval of several months," analysts of KIT Group emphasized.
Although, according to them, the hryvnia exchange rate has now stabilized and is even slightly strengthening against the most popular currencies, such as the US dollar and the euro. The dollar exchange rate remained relatively stable in October, with slight fluctuations at UAH 41.11-41.5/$. So far, there are no significant factors that could change this situation in the short term. By the end of the year, the exchange rate is expected to be around 42 UAH/$. The euro is also declining to 45.05-45.63 UAH/€ after reaching a peak of 45.63-46.22 UAH/€. Spreads between buying and selling rates remain relatively stable, which, according to KIT Group analysts, indicates that the market equilibrium between the official and real exchange rates, which is recorded by market operators, has been achieved.
According to KIT Group's forecast, the dollar will maintain a relatively stable position in the short term, while analysts expect the euro to "continue its downward exchange rate trend for at least a month with possible minor fluctuations, depending mainly on external factors. The Ukrainian currency market has no influential drivers to change the euro's downward trend.
The $50 billion financing program agreed by the G7 countries will be one of the important factors in ensuring further long-term support for economic and currency stability in Ukraine. "This decision adds to the list of stabilizing factors, the number of which still exceeds the number of risk factors for exchange rate stability," KIT Group said.
