Ukraine’s hryvnia may fall 19% in six months

09:14, 17 February 2009
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As economy worsens

Ukraine’s hryvnia may tumble 19 percent against the dollar in the next six months as a deteriorating economy and dearth of foreign investment forces the country to abandon its management of the currency, according to five analysts surveyed by Bloomberg.

The hryvnia may slide to 10 per dollar by the end of August, according to the median estimate of the economists and currency strategists surveyed by Bloomberg yesterday. The hryvnia plunged 43 percent since August to 8.15 per dollar as the economy spiraled toward recession and the International Monetary Fund pledged $16.4 billion in emergency loans.

“Ukraine is really facing an uphill battle,” said Lars Rasmussen, an emerging-markets strategist at Danske Bank A/S in Copenhagen, who forecasts the hryvnia will be at 10 per dollar in six months. “They need to be less focused on holding their currency and concentrate their money on other problems in their economy.”

Ukraine’s economy may shrink 9 percent this year, as the worst global financial crisis since the Great Depression damps demand for its exports and leaves the former Soviet republic struggling to fund deficits in its current account and budget, according to HSBC Holdings Plc, Europe’s biggest bank. The nation’s reserves slid almost 9 percent to $29 billion in January, as the central bank “regularly” bought and sold foreign currency to control the hryvnia, according to its head of external relations, Serhiy Kruhlik.

Deficits

The analyst forecasts ranged between 8.5 and 11 per dollar. The hryvnia lost 1.2 percent against the U.S. currency this year. It was unchanged against the dollar yesterday and held at 10.4074 per euro, as UniCredit SpA said the Natsionalnyi Bank Ukrainy was intervening.

Ukraine is struggling to fund a $12.3 billion current-account deficit amid the worldwide seizure in credit markets and a slump in the price of steel, its biggest export. The country’s banks face losses and writedowns worth $964.6 billion.

The country passed its 2009 budget in December with a planned budget deficit of 2.97 percent of gross domestic product. Finance Minister Viktor Pynzenyk submitted his resignation last week in a dispute over the deficit, which violated IMF requirements. The IMF offered the loan on the condition Ukraine run a balanced budget.

“The market is really nervous about them losing their IMF support,” Rasmussen said. “The IMF may use them as an example to say, look, we want to help but if you’re not fulfilling your side of the bargain, goodbye.”

Fitch Ratings reduced Ukraine’s credit rating to five levels below investment grade at B last week, amid concern the economy will shrink 4.5 percent this year. Standard & Poor’s said today it may also cut the country’s rating because of concern the IMF loan arrangement may be at risk.

Bloomberg

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