Analysts, bankers predict average annual exchange rate of UAH 45/$1 in 2025, matching state budget projection

Analysts from the currency exchange market operator KYT Group, along with experts from Globus Bank and Unex Bank (both Kyiv-based), agree that the average annual exchange rate in 2025 will likely hover around UAH 45/$1. This aligns with the figure embedded in the national budget for the upcoming year.

"The most probable scenario is an average annual rate close to the government's forecast of UAH 45/$1 as reflected in the 2025 state budget. This implies fluctuations within the UAH 44-46/$1 range throughout the year, with a tendency toward the higher end by year-end. Currently, we see no reason to underestimate the risks of further long-term depreciation," KYT Group stated in response to a query from Interfax-Ukraine.

Experts anticipate a weakening of the official exchange rate to UAH 42.20-42.50/$1 by the end of this year. They emphasize that the forecast for early 2025 depends on macroeconomic factors, including the trajectory of international support, U.S. Federal Reserve monetary policy, and the exchange rate dynamics between the U.S. dollar and the euro in global markets.

"If financial support from partners and allies continues steadily, and external market volatility remains low, the hryvnia exchange rate will be relatively predictable, although it is expected to remain on a depreciation trajectory," the analysts noted.

Globus Bank Chairman Serhiy Mamedov also relies heavily on the UAH 45/$1 rate outlined in the state budget when making projections for the official exchange rate next year.

"We understand that the dollar's value could depend on several factors and circumstances, particularly the volume of international financial assistance aimed at bridging the budget deficit between expenditures and revenues," Mamedov explained.

Key factors influencing exchange rate dynamics include GDP growth rates, inflation levels, and military activities, which can exert pressure on the currency market and prompt increased demand for foreign currency in both cash and non-cash transactions.

"We cannot rule out deviations from the forecast entirely. However, the weighted average exchange rate of UAH 45/$1 serves as a benchmark for businesses planning their operations for 2025, such as housing developers who launched projects in the second half of 2024 with completion scheduled for 2026," Mamedov added as an example.

According to Globus Bank's calculations, the hryvnia could weaken to UAH 46-47/$1 by the end of 2025.

"From today's perspective, the figures embedded in the budget seem quite realistic, and by the end of next year, if there are no significant changes in the security situation, an exchange rate range of UAH 45-47/$1 is highly probable," commented Unex Bank's Treasury Operations Director, Hanna Zolotko, to Interfax-Ukraine.

"However, I would avoid rushing into any predictions. The likelihood of the war ending in 2025 is not zero. If reliable security guarantees are secured, the economic landscape could shift rapidly, including the hryvnia's exchange rate," she added.

In a positive scenario where hostilities cease, Zolotko expects a surge in foreign investments. She does not rule out a scenario in which the central bank might need to purchase foreign currency on the interbank market rather than sell it.

"Clearly, this scenario seems somewhat speculative now, but it cannot be dismissed," Zolotko concluded.

KYT Group analysts attribute the record surge in foreign currency demand at the end of this year to the traditional year-end settlement activity of businesses with foreign contracts and increased cash currency demand among the population.

"Nevertheless, throughout the year, we observed relatively narrow spreads between buying and selling rates, a clear sign of market balance. However, in December, the dollar's buying and selling rate spread widened to UAH 0.8–1, indicating increased market pressure," the experts explained.

Thanks to record imports of cash currency and interventions by the National Bank, the hryvnia managed to remain relatively stable, they added.

"An important factor next year will be the increased tax burden on deposits. If banks fail to offset the drop in deposit returns with attractive offers, there is a high likelihood of savings and excess hryvnia liquidity shifting into cash currency outside the banking system, which could further pressure the exchange rate," the experts warned.

Mamedov predicted that cash exchange rates for the hryvnia against the U.S. dollar in 2025 would likely differ from interbank rates by 0.3–0.5 UAH. Thus, if the interbank rate reaches approximately UAH 46-47/$1 by the end of the year, the cash market rate could average UAH 46.50-47.50/$1.

"However, at this point, making linear projections without accounting for several dynamically evolving or potential factors is highly challenging," the banker noted.

Zolotko identified heightened public demand amid devaluation expectations as a key driver behind the record volumes of cash currency imports. Other contributing factors include restrictions on purchasing non-cash foreign currency (limited to UAH 50,000 per month per bank) and significant improvements in overland transportation channels for bringing cash currency into Ukraine.

"There is no inherent issue with the current figures. The National Bank has sufficient reserves, and projected international aid inflows for at least the next year appear robust. Therefore, there are ample resources to meet this excess currency demand. However, it is essential to remember that much of this demand is related to savings, essentially forming 'private' currency reserves," Zolotko emphasized.

As reported, last year the hryvnia officially depreciated by 4.5%, ending the year at UAH 37.9824/$1, while the government had projected an average annual rate of UAH 42.20/$1 and a year-end rate of UAH 45.80/$1 in the 2023 budget.

This year, the hryvnia has depreciated by 10.6%, standing at UAH 42.0390/$1 as of December 31. Meanwhile, the Cabinet had forecasted an average annual rate of UAH 40.70/$1 and a year-end rate of UAH 42.10/$1 in the state budget.