An appreciation of the Ukrainian hryvnia to combat the country`s double-digit inflation rate would worsen the trade deficit, Ukraine`s deputy economy minister said on Wednesday, saying that inflation would be tackled via trade liberalisation and improved energy efficiency, according to Reuters.

"Currency appreciation is one way (to fight inflation) but we have a negative trade balance which would speed up if the currency were to appreciate," Valeriy Pyatnytskiy told Reuters in London.

Ukraine`s trade deficit for goods for the first two months of the year stood at $1.1 billion.

The country`s hryvnia <UAH> is trading at about 3 percent above its official 4.95-5.25 percent band, sparking market speculation that the central bank favoured a stronger currency to curb inflation.

Ukraine`s central bank, however, has said it would not widen the trading band to the greenback.

"Frankly, it`s impossible to stop inflation just by appreciating (the currency by) 1 to 2 percent," Pyatnytskiy said.

Instead, the government would combat inflation, which hit 30 percent in April, with a combination of lower food import tariffs as a result of its World Trade Organisation accession this month as well as targeted action to break up local monopolies.

"We are trying to liberalise access to our markets, for instance, to reduce duties on imported meat, to reduce the cost of food," he said.

Ukraine, which would become the World Trade Organisation`s 152nd member on May 16, has seen food prices rise jump by more than 50 percent in the last 12 months.

"What we can do now is also to stimulate an increase in energy efficiency," the minister said, adding that it would take time to modernise the country`s dominant steel sector in this respect.


The finances of Ukraine`s budget have become uncertain after the suspension of most privatisation plans worth potentially billions by President Viktor Yushchenko.

Pyatnytskiy said the country`s overall privatisation objective remained intact but the debate now was over what share of certain national assets would be sold off.

"It is better to postpone (privatisation) to have a more stable and predictable (long-term) process," he said.

He said Ukrainian legislators would likely pass amendments to the country`s budget -- initially expected in March -- by mid-July.

Ratings agency Fitch on Wednesday cut Ukraine`s sovereign outlook to stable from positive, criticising the government`s "half-hearted" policy response to inflation.

Tensions between Prime Minister Yulia Tymoshenko`s government and the office of the president have flared up amid bickering over economic policy.

The government has been accused of worsening inflation by hiking social welfare payouts and wages ahead of 2010 elections.

"As regards to inflation, Ukraine is not in a unique situation. We`ve seen inflation higher in Europe as well as other emerging economies," Pyatnytskiy said, adding that the country remained on track for economic growth of around seven percent this year.

The minister said differences between the president and the prime minister were part of the development of a young democracy and would not destabilise the Ukrainian economy.

"We have stable institutions like the central bank which traditionally remains outside politics and has no political appointments," he said.