After plunging to an all-time low of Hr 5.7 to the dollar, the beleaguered hryvna crawled back up to Hr 5.3 to the dollar in street trading in Kyiv on Dec. 14.
The National Bank of Ukraine’s official rate, which is calculated using trading data from the so called interbank market, settled at Hr 5.08 to the dollar the same day – still well above the lower limit of the central bank’s trading band for 1999 of Hr 4.6 to the dollar.
Ironically, the hryvna’s latest fall followed upbeat statements by central bank chairman Viktor Yushchenko on Dec. 3
‘We have only positive expectations regarding the [hryvna exchange] rate,’ Yushchenko told reporters.
But the same day hryvna quotes in trading among banks slid to Hr 5.02 to the dollar, a fall of 1.5 percent.
Yushchenko later said a surplus of hryvna caused by the excessively high liquidity of the commercial banks was behind the fall. He said money had been flowing to the banks as the population started to spend social payments given to them by the government before the presidential election in mid November.
‘In the last ten days of November Hr 450 million entered the banking system,’ Yushchenko said.
The hryvna had lost another 2.6 percent by Dec. 6, and was quoted at Hr 5.15 in interbank trading. Currency market experts said the Dec. 3 fall had increased the banks’ worries about the hryvna, and that they had begun to purchase hard currency in response.
‘Even before this people thought the market might break – it simply needed a jolt, a spark,’ said Metallurg bank dealer Oleksandr Lohvynenko.
Another jolt came on Dec. 8, when the hryvna lost almost 10 percent of its value against the dollar, slumping to Hr 5.7 to the dollar in interbank trading.
Bankers again blamed the fall on the surplus of hryvna in the banking system. The NBU mopped up some Hr 187 million of the commercial bank’s spare cash on Dec. 8 via an auction of NBU Certificates of Deposit, but dealers said that wasn’t enough.
‘The National Bank can’t cope with [the hryvna surplus],’ said one dealer at a western-financed bank, who declined to be named.
Western experts, while acknowledging that the hryvna surplus is partly to blame for the currency’s problems, said the weakness of the Russian ruble was also playing its part.
The International Monetary Fund’s recent decision to delay the release of more loans to Russia directly affects Ukraine, they said. As Russia accounts for the largest share of Ukraine’s foreign trade, the hryvna shares the pain when the ruble suffers.
Other experts tie the fall in the hryvna to domestic economic woes. According to one NBU advisor who declined to be named, the hryvna’s fall is linked to a decline in foreign investment in Ukraine.
‘Investments have decreased and are now less than Ukraine’s trade deficit,’ said the expert.
‘But any economics student knows that these indicators should be at least equal. As nothing can be done about investments, the government can decrease the trade deficit by making imports more expensive. The easiest way to do this is to devalue the hryvna.’
Another banker said the hryvna’s fall was due to the government’s relaxing control over the exchange rate.
‘The hryvna has always been artificially supported,’ said the banker, who also declined to be named. ‘Just think about the kind of money spent during the elections. If the hryvna really is allowed to float, our worst nightmares will come true.’
The hryvna started to revive on Dec. 10, as two prominent government figures rallied to its support.
Acting Prime Minister Valery Pustovoitenko urged the banks not to speculate on the currency but rather invest in the Ukrainian economy, while Yushchenko promised the central bank would soak up the hryvna surplus.
‘I admit we issued surplus hryvna,’ said Yushchenko. ‘But … Finance Minister Ihor Mityukov said at a recent briefing he would repay a [Hr 400 million] credit to the NBU. Thus, the NBU will be able to neutralize the surplus hryvna.’
Central bank officials predicted a further strengthening and stabilization of the exchange rate. NBU currency regulation department director Serhy Yaremenko, for instance, told Ukrainian News he considered Hr 5.1 per dollar a realistic rate in the near-term.
But bankers were unwilling to offer long-term prognoses on the exchange rate.
‘The oligarchs have stolen most of Ukraine’s funds,’ said one banker. ‘Now, when there’s a steep devaluation, they support the hryvna a little, but once they stop the whole mess starts up again.’
