Hryvnia slid versus dollar to a record low

16:32, 28 October 2008
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On recession concern

Ukraine`s hryvnia slid to a record low against the dollar for a fifth straight day as concern the government will be powerless to forestall a recession prompted investors to sell the nation`s assets, according to Bloomberg.

The currency declined even as the central bank offered dollars at 5.5 hryvnia today, according to Alexander Pecherytsyn, head of financial markets research at ING Groep NV in Kiev, citing traders. The hryvnia also sank versus the euro. The International Monetary Fund offered Ukraine a $16.5 billion loan this week to help support the financial system.

``A sharp recession has to be expected,`` said Ulrich Leuchtmann, head of emerging-markets currency strategy in Frankfurt at Commerzbank AG. ``There`s also the possibility the political situation in Ukraine will make it impossible to implement the conditions of the IMF package.``

The currency dropped 5 percent to 6.3500 per dollar by 3:51 p.m. in Kiev, the weakest since the hryvnia was introduced in 1996, from 6.0500 yesterday. It gave up gains of as much as 1.2 percent to 5.9800. Against the euro, it sank 5 percent to 7.9853, a seven-month low, from 7.6032.

The former Soviet republic`s $7.7 billion current-account deficit makes it dependent on foreign investment at a time when debt markets around the world are frozen and liquidity is crimped. The central bank sold 10 percent of its foreign-currency reserves this month in an effort to arrest the hryvnia`s decline, Petro Poroshenko, head of the bank`s council, said yesterday.

Current Account

President Viktor Yushchenko broke from his coalition with Prime Minister Yulia Timoshenko last month amid disputes over how best to reduce the country`s 24.6 percent inflation rate and its relations with neighboring Russia. Amid opposition from Timoshenko`s backers, the government has failed to vote on legislation to fund a new election, currently set for December.

Ukraine`s current-account shortfall, which compares with Russia`s $91.2 billion surplus, will probably widen to $15 billion this year, central bank Governor Volodymyr Stelmakh said this month. Standard & Poor`s, Fitch Ratings and Moody`s Investors Service have downgraded the nation`s credit ratings. The IMF loan is conditional on Ukraine supporting the country`s banks.

The hryvnia will probably trade at about 6 per dollar by the end of 2009 because the IMF credit is enough to finance Ukraine`s current-account deficit for about 18 months, Leuchtmann said.

Ukrainian government bonds rose. The yield on the 4.95 percent bond due 2015 fell 20 basis points to 24.24 percent. The 7.65 percent bond maturing 2013 yielded 30.45 percent, little changed from yesterday.


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