The dollar would need to rise to approximately UAH 48.6 to match the return on a deposit at 17.5% — expert

With an assumed initial exchange rate of UAH 45.5 per US dollar, the US currency would need to appreciate to approximately UAH 48.57 over six months for its growth to match the net return on a six-month hryvnia deposit at an annual interest rate of 17.5%.

This benchmark was outlined by Dmytro Zamotaiev, Director of the Retail Business Department at GLOBUS BANK.

The calculation is based on a deposit without interest capitalisation and takes into account the taxation of interest income. At an annual rate of 17.5%, the net return on such a deposit over six months would be approximately 6.74%.

Accordingly, if the dollar exchange rate is UAH 45.5 when the deposit is opened, it would need to rise by approximately the same 6.74% — to UAH 48.57 per dollar — to generate a comparable return over the same period.

If the initial exchange rate is between UAH 45 and UAH 46, the indicative “break-even threshold” would be approximately UAH 48–49.1 per dollar.

At the same time, the expert cautioned that this is only a simplified model. It does not account for the difference between currency buying and selling rates, meaning that the actual exchange rate threshold for an individual would be higher.

“When buying dollars, a person pays the bank’s or exchange office’s selling rate. When they want to ‘switch back’ to hryvnias, they will sell the currency at a lower rate. Therefore, simply comparing the deposit interest rate with the percentage increase in the dollar’s value is not enough,” explained Dmytro Zamotaiev.

According to him, a similar principle can be applied to inflation. If cumulative price growth over six months is below 6.74%, the net return on the deposit will, in formal terms, offset the loss of purchasing power caused by inflation.

For example, with six-month inflation of 4%, a simplified estimate of the deposit’s real return would be approximately 2.7%; with inflation of 5%, around 1.7%; and with inflation of 6%, about 0.7%.

“No one can predict exactly what the exchange rate will be on 1 April or what inflation will look like over the next six months. However, depositors can set their own ‘reference points’. In our example, these are approximately 6.7% cumulative inflation and an exchange rate of around UAH 48.6 per dollar, assuming an initial rate of UAH 45.5. Such calculations are far more useful than making emotional decisions to rush out and buy foreign currency,” the banker concluded.