Events at front affect financial markets, but situation on market stable now – NBU head

The situation at the front certainly affects everyone’s psychological state, and accordingly it affects financial markets, the economy and expectations: anxiety and tension accumulate and are looking for a way out, but at present the situation on the financial market is stable, says Governor of the National Bank of Ukraine (NBU) Andriy Pyshnyy.

"We saw a similar influence in July of this year, when exchange rate volatility began to grow. The National Bank ensures market stability with an instrument of interventions, so we felt it in their volume, in the growth of demand and tried to understand what was happening, what was influencing and fueling this market nervousness. Then the market stabilized, including thanks to the actions of the National Bank," he said in an interview with the Interfax-Ukraine agency.

"The situation on the market is stable now, the presence of the National Bank is effective, and controlled flexibility works as a tool," Pyshnyy emphasized.

He also noted that the hryvnia exchange rate has stopped reacting to shelling for a long time.

"It is obvious that exchange rate fluctuations have a considerable psychological component. At the same time, if earlier (at the beginning of the war) the reaction of the cash exchange rate to shelling was noticeable, then at present it has not been observed for quite a long time," the head of the National Bank stated.

He added that he first noticed a similar situation for himself in October 2022, immediately after his appointment to the post, when the first massive strikes on critical energy infrastructure facilities and the first long-term outages began.

"Later, I noticed that the correlation between the shelling and the exchange rate dynamics disappeared, because we had survived that first moment, already had the first experience… Unfortunately, we had already become accustomed to a certain extent to the threat of missile strikes and the disgusting buzz of drones. Living in the reality of a permanent threat, we became not indifferent, but alert," Pyshnyy said.

According to him, then, in October 2022, this transformation of public consciousness was reflected in the exchange rate dynamics.

"We even saw an inverse correlation between the shelling and the exchange rate dynamics, but of a different kind: after each severe shelling or aggravation of the situation at the front, which we went through without breaking, there was even a certain revaluation," the banker shared his observations.

He recalled that at that time, the central bank did not yet have such a tool as controlled exchange rate flexibility, but the cash rate reacted in exactly this way.

"We called it the "resilience factor" among ourselves. The exchange rate as a reflection of society: each time we recovered and the hryvnia recovered. My colleagues and I even tried to calculate this "resilience factor" and include it in the forecast as one of the positive risks, because we have repeatedly seen how this situation works in matters related to the sustainability and adaptability of Ukrainian business, which is often talked about," Pyshnyy noted.

He emphasized that Ukrainian business is completely unique, as it is able to find solutions in such difficult situations as the loss of 30% of GDP, shelling, and an absolutely critical situation with energy supply at certain moments.

"And each time, it seems, it finds them faster, cheaper, more efficiently. And then it moves on to the next stage," the head of the NBU added.