Ukraine PM says FX to rise, others see fall later

10:33, 21 May 2009
Ukraine
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The Ukrainian hryvnia will continue to strengthen?

The Ukrainian hryvnia will continue to strengthen thanks to an IMF loan tranche, Prime Minister Yulia Tymoshenko said on Wednesday, while others said the currency was likely to weaken after the summer months, Reuters reported.

The hryvnia has risen against the dollar in the past month, trading at about 7.6-7.7 to the dollar against around about 8/$ at the start of the month. The currency hit a historic low in December of 9.5-10/$ as exports fell sharply.

The International Monetary Fund released a $2.8 billion tranche from a $16.4 billion loan programme earlier this month after three months of a stand-off over policy differences. "By distributing the (IMF) tranche partly to the foreign currency reserves and partly to the budget, we have seen the hryvnia truly strengthen and the dollar falling," Tymoshenko told a regular cabinet meeting.

"Today, there is no point for large businesses and banks to hold onto the dollars, expecting them to rise. Today dollars have to be sold because the dollar is falling and the hryvnia is starting to strengthen." Analysts have said the IMF cash, imports that have halved in the first quarter compared to a year ago and generally falling wages amongst the population, have all supported the hryvnia.

"When the dollar is losing 5-10 kopyikas every day, many Ukrainians began to sell the dollar, fearing they will lose money due to the stronger hryvnia," said analysts at Astrum, an investment bank.

"We saw a similar situation in June-July 2008 on speculation that the hryvnia would appreciate fast."

The hryvnia strengthened to as much as 4.6/$ last year, when the central bank loosened its grip over the currency. There tends to be less pressure in the middle of the year on the hryvnia than in the winter, when Ukraine imports more gas.

"This trend (of strengthening) will continue until the end of the summer, after which we expect a higher dept repayments and import growth, especially in energy, linked to preparations for the winter season," ING said in a research note.

"These factors can turn the trend towards the hryvnia weakening."

The central bank itself was not willing to give a forecast for the hryvnia rate in the future, saying there were too many uncertainties.

"To answer that question, we need answers to other questions -- when will the budget be reviewed and which way, when will we receive the third IMF tranche, when will industrial output stop falling, when will real wages and trade rise," the central bank`s top adviser, Valery Lytvytsky, said.

Reuters via Guardian

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