Ukraine's battered currency, the hrvynia, hit a new all-time low. The fear is that a population panicked by a year of revolution and war may drive it to further lows before the currency stabilizes.
The Sept. 23 trade session on the interbank market closed with a rate of Hr 15 per U.S. dollar on the ask side. In the beginning of the year, the hryvnia stood at 8.04 against dollar, which means it devalued by 46 percent against the American currency.
However, central bank’s official rate is Hr 13.5 per dollar. The regulator today announced a new prohibition to prevent commercial banks from selling more than $200 to a single person. Those who have to pay off their foreign currency-denominated loans could be an exception. Meanwhile, various websites are offering far larger amounts of dollar cash for those who are willing to pay the premium price.
Olena Shcherbakova, who manages regulator’s currency policy, says keeping the artificial hryvnia rate corridor, which was a usual policy for Yanukovych-era central banking, is not an option. “Our foreign partners won’t understand us (if we do this),” she said during the Sept. 23 news conference.
The list of partners includes the International Monetary Fund that views currency free-floating regime as a key measure for treating the unhealthy environment of emerging economies like Ukraine. Meanwhile, country may ask the International Monetary Fund for an additional bailout package, since the fund’s $17-billion, 3 percent loan just seems not to be enough, the nation’s Finance Minister Oleksandr Shlapak said on Sept. 23.
“If you ask a college sophomore with major in economics, he’ll tell you that (the hryvnia) rate should be strengthening,” said Arseniy Yatsenyuk, country’s prime minister who led the central bank in 2004-2005. “I have no other explanation, but a panic on one side and speculations on the other.”
For the past three months, $14.2 billion were sold on the interbank market, where commercial banks buy and sell the currencies in order to achieve profits.
President Petro Poroshenko held an urgent meeting with Yatsenyuk and Valeriya Gontareva, head of National Bank, on Sept. 23, while the heads of 40 largest banks meet each Wednesday to discuss a strategy for calming down the panic mood.
“My recommendation is not to buy dollars right now,” said Oleksandr Dubilet, who manages country’s largest bank Pryvat with $15.1 billion in assets. The market is psychologically overreacting, according to him.
The weak hryvnia is a big risk for the banks. “According to our previous forecast, a rate of Hr 14.2 against dollar would not allow our bank to respond to the (regulator’s) norms,” said Evgeniya Chemerys, head of French lender Credit Agricole’s Ukrainian subsidiary.
The local population’s skepticism towards the hryvnia includes similar attitude towards hryvnia-denominated deposits, whose amount fell by 10 percent since January, which is why banks have to offer unbelievably high deposit interest rates to preserve the incoming cash flow. Some of these rates reach as much as 26 percent, while average deposit rate for one-year placement of hryvnia cash stands at 20.4 percent.
However, as the National Bank expects 19 percent inflation this year, 20 percent interest rate on deposits doesn’t look very attractive.
More pressure on hryvnia is expected as Naftogaz, government-run oil and gas giant, is paying off its $1.6 billion eurobond on Sept. 30 and needs dollars for this move.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected].
