What does the Ukrainian currency crisis mean for you?
Ukraine's currency, the hryvnia, isn't performing too well right now. A period of rapid inflation saw it devalue by 51% against the dollar over January and February, prompting Ukrainian policymakers to ban banks from trading in the currency. But there's speculation around just how accurate the figures we're seeing are, making it tricky to anticipate just how the predicament could impact those with investments in the country. That's why we've summarised the need-to-knows.
First things first: Ukraine is actually experiencing hyperinflation. The emergency measures, from the currency trading restrictions to the punishing 30% interest rate, as well as the exchange rates, support this.
Think-tank Cato Institute has used free market exchange data (code for black market rates) to calculate an annual inflation rate of 272%, and a monthly rate of 64.5%. That's a sharp contrast to the 28.5% year-on-year inflation rate claimed by the government in January.
Practically, this means your hryvnia – or Ukranian investments – will have lost value against foreign currencies pretty quickly. The price of goods and services in the Ukraine has also soared. Many Ukrainians have bought consumer electronics because they're holding value better than the currency, and cooking oil, flour and sugar have been rationed. And as you'd expect, high interest rates are also pushing up the cost of mortgages and loans held in the country. But the end might be in sight.
Some analysts, including Anders Åslund of the Peterson Institute for International Economics think-tank, say that this acute crisis may not last for long. Ukraine recently approved the laws the International Monetary Fund demanded in return for financial help, meaning it should be able to access up to $40bn over the next four years. Before the decision was even made, this had a noticeable effect on the currency. From 26 February to 3 March, the hryvnia's value against the dollar rose by 30%.
If the IMF's move is successful the hryvnia should stabilise, meaning selling off your assets now isn't necessarily the best choice. Instead, pay close attention to how the rate improves over the next month or so. If you're making regular overseas payments [LINK: ROP GUIDE], you can protect yourself from these kinds of changes in the future with a fixed payment plan, which locks in your transfers at a set rate for up to two years. As far as your Ukranian investments go, while it's not a case of panic over just yet, it is a case of don't panic.