Hryvnia Plunges as Ukraine Warns Banks to Keep to Official Rate
Ukraine’s currency has...
Ukraine’s currency tumbled for the first time in seven days even as the central bank warned 17 lenders not to buy or sell the hryvnia for less than the exchange rate it sets, according to Bloomberg.
“We have contacted the first group and issued warnings,” Serhiy Kruhlik, the central bank’s head of external relations in Kiev, said in a telephone interview today. “We’ll talk to a second group this week and the approach will be the same.”
Ukraine’s currency has slumped 42 percent against the dollar in the past six months, the second-biggest loss worldwide, causing the central bank to drain a third of its foreign-currency reserves. The ex-Soviet republic, which is struggling to fund a $12.3 billion current-account deficit amid frozen credit markets, is receiving a $16.4 billion bailout loan from the International Monetary Fund on the condition that it avoid further depletion of reserves.
The hryvnia had stayed unchanged at 7.8500 per dollar for the past week, close to the average 7.98 per dollar set by the central bank on March 6. The currency tumbled as much as 4.9 percent to 8.2350 today as bid and offer prices ranged beyond the average level set by the Natsionalnyi Bank Ukrainy, according to data compiled by Bloomberg.
“This is a tussle between the banks and the NBU,” said Dmitry Gourov, a Ukraine economist in Vienna at UniCredit SpA, Italy’s largest bank. “The central bank could easily make a scapegoat of one particular bank, there’s always that risk.”
The central bank made “verbal warnings” to the country’s larger banks last week that they may lose the right to buy foreign-currency reserves if they traded the hryvnia below the central bank’s rate, said Alexander Pecherytsyn, head of financial markets research at ING Groep NV in Kiev.
Banks adhered to the order because they “fear action from the central bank, such as the withdrawal of their licenses,” Pecherytsyn said. “Some of the smaller banks trade it at a weaker rate but that doesn’t show up on the screens.”
Credit Suisse Group AG hadn’t received any warning from the central bank, said Nikolai Yukovich, a data manager in Moscow. The bank had a bid for hryvnia at 8.2450 per dollar today and offered the currency at 8.3950, according to prices on Bloomberg. Traders at Galt & Taggart Holdings Inc., a Kiev-based brokerage, are seeing bid and offer rates at 8.34 and 8.42 per dollar today, said Jathan Tucker, head of trading.
The hryvnia began tumbling in September when the collapse of the ruling coalition between President Viktor Yushchenko and Prime Minister Yulia Timoshenko raised concern that the government would be unable to implement policies to stem the fallout from the global financial crisis.
Standard & Poor’s cut the country’s credit rating two levels last month to CCC+, the lowest in Europe and seven steps below investment grade.
The government approved a budget deficit equivalent to 5 percent of gross domestic product, even as the IMF demanded a balanced budget as part of the conditions for its loan, which is being paid in tranches.
Ukraine’s economy will contract at least 5 percent this year, according to Yushchenko, as steel companies like Yenakievsky Metalurhiyny Zavod reduce output. Industrial production plummeted 34.1 percent in January, while the country’s 20.9 percent inflation rate is the highest in continental Europe. The central bank forecasts inflation of “at least 15 percent” in 2009.