FX: UAH steady as US dollar rises

Макроэкономика 18.11.2014 NBU officials convened with the heads of the top 40 banks to discuss the ongoing situation at the FX market. They seek a mutual agreement to hold further series of FX auctions to sell small volumes of US dollars to the market to discover a 'balanced' exchange rate to fulfill some of the unsatisfied demand. We believe the hryvnia is currently undervalued by 16% on a real trade weighted basis (for details, please see Chart 15 on page 7). Future developments depend on inflation: if CPI and PPI outperform the expected trajectory that peaks in 1Q15 and then subsides to 10-12% over the rest of next year, then devaluation pressure should remain. Conversely, if inflation performs below expectations, then devaluation expectations should subside significantly.