The IMF wants a weaker hryvnia – the NBU is against it. Why does Ukraine need devaluation and what will happen to the exchange rate?

The International Monetary Fund is demanding that the National Bank of Ukraine devalue the hryvnia. This was recently notified Bloomberg. A weaker hryvnia will allow the government to cover its expenses more effectively. The IMF believes that a weakening exchange rate could increase export revenues and ease budget financing, which is heavily reliant on external aid.

Ukraine has already received most of the $15.6 billion in aid under the current program and is negotiating a new package of $8 billion.

The NBU emphasizes that it implements its monetary and exchange rate policy in accordance with strategic documents agreed upon within the framework of the current IMF program. However, the final decision remains with the National Bank.

"The NBU's policy has been and remains aimed at ensuring price stability, exchange rate stability, the attractiveness of hryvnia assets, and macroeconomic stability," – said NBU Governor Andriy Pishny during a briefing on monetary policy.

What steps the National Bank might take, why Ukraine needs devaluation, and how it will affect the exchange rate – in this article LIGA.net.

What will the National Bank do?

A move towards devaluation of the hryvnia may be among the IMF's recommendations and wishes, since they are not directly included in the memorandum of cooperation. It only contains requirements for gradual currency liberalization and maintaining macroeconomic stability. This is according to Oleksandr Pecheritsyn, Director of the Analytical Research Department at Raiffeisen Bank.

"Given the macroeconomic situation, we believe that the main signal here is the need for devaluation," says Pecheritsyn.

At its latest briefing on the key interest rate, the NBU decided to keep it at 15.5%, contrary to analysts' expectations and the current trend of declining inflation. The logic was based on excessive inflationary risks, particularly due to a difficult winter resulting from Russian attacks. However, the chance of devaluation may also have been among the risks visible to the NBU, suggests Dmytro Krukovec, a macroeconomist at the KSE Institute.

The question remains open as to what form the devaluation correction should take: gradual or one-time, he says. Gradualness avoids sharp reactions, but costs more in terms of higher reserve spending. A one-time, clearly communicated weakening, followed by maintaining the exchange rate in a new range, may be more effective if accompanied by a high interest rate and stable external financing.

Does Ukraine need devaluation

The issue of hryvnia devaluation remains controversial: weakening the national currency may partially help the budget and exporters, but at the same time carries risks of inflation and financial instability.

In the short term, this could be an unjustified shock that will do little to help the budget and balance of payments, while destabilizing inflation, emphasizes Vitaliy Kravchuk, a leading expert at the Institute of Economic Research and Political Consulting.

"But a large imbalance between imports and exports is a problem that will have to be solved sooner or later," he emphasizes.

At the same time, maintaining a stable exchange rate in conditions of high domestic inflation gradually reduces the competitiveness of Ukrainian producers. According to analysts at Raiffeisen Bank, inflation in Ukraine in 2025 will be around 13%, while in the USA and the EU it will be in the range of 2–3%. This makes imports more attractive and exports less profitable, which deepens the foreign trade deficit.

The current balance is maintained mainly thanks to international aid, however, this situation cannot remain stable indefinitely, says Oleksandr Pecheritsyn, Director of the Analytical Research Department at Raiffeisen Bank.

"These imbalances are leading to an expansion of Ukraine's foreign trade deficit, which is currently being covered by international aid," warns Pecheritsyn. This will negatively impact the level of international reserves, thereby limiting the National Bank's long-term potential to maintain stability in the foreign exchange market, he adds.

From March 2022 to September 2025, the official hryvnia exchange rate weakened by 41.2%, while consumer inflation growth over this period exceeded 53.9%, according to data provided by KSE Institute's expert in macroeconomic analysis, Dmytro Krukovec. This difference is explained by administrative restrictions – primarily fixed tariffs for gas and utilities.

In contrast, food prices rose even faster, by 63.2%.

"Price increases that outpace the exchange rate by tens of basis points distort relative prices, resulting in imports remaining more competitive than domestic production in a number of segments," Krukovets points out.

From a fiscal perspective, a moderate devaluation could partially increase state budget revenues. The budget for 2025 projects a rate of 45 hryvnias per dollar, while the current rate remains around 42. Economist Oleksandr Khmelevskyi believes that a slight weakening of the hryvnia would help compensate for part of the deficit and stimulate exporters. However, such a move would indeed be accompanied by side effects – accelerated inflation, increased demand for currency, and a reduction in reserves.

"Devaluing the hryvnia would increase revenues to the state budget, but it could also trigger additional demand for currency and force the NBU to reduce reserves," notes Khmelevskyi.

According to calculations by analysts at the investment group ICU, a one-hryvnia increase in the dollar would bring the budget an additional 45-50 billion hryvnias in revenue from the government's foreign currency exchange.

"Positive effects of devaluation can only be discussed if it is a very moderate process, barely noticeable to businesses and the population, which does not complicate the planning of budgets and savings of companies and households," the ICU notes.

What will happen to the exchange rate?

Those surveyed LIGA.net However, financial experts still predict a moderate devaluation by the end of 2025.

"The growth rate of the hryvnia/dollar exchange rate will be around 2% year-on-year by the end of 2025, accelerating to 7% in the following year," according to Oleksandr Pecheritsyn.

Economist Oleksandr Khmelevskyi also suggests that the NBU will begin a moderate devaluation of the hryvnia at the end of the year. He adds that the exchange rate will not exceed 44 hryvnias per dollar by the end of the year.

"Our forecast suggests a slight weakening of the hryvnia against the dollar – to 42.4 UAH/USD by the end of 2025 and to 44.5 UAH/USD by the end of 2026," say analysts at the investment group ICU.