Ukraine's hryvnia sinks again; central bank stymied by dwindling foreign reserves

Written by Reuters | Kiev | Updated: Feb 27 2014, 23:26pm hrs
UkraineThe currency was trading at 11.0 to the dollar. Reuters
Ukraine's hryvnia fell to a new record low against the dollar on Thursday as investors kept far away from a country in turmoil with a central bank stymied by dwindling foreign currency reserves.

The political situation in Ukraine remained tense. Armed men seized the regional government headquarters and parliament in Crimea on Thursday and raised the Russian flag.

The currency was trading at 11.0 to the dollar on the Reuters dealing platform, and forward markets were pricing it to trade weaker at 11.65 per dollar in six months' time.

Ukraine's dollar bond maturing in June 2014 fell slightly to 93.94 cents to the dollar, although other dollar bonds ticked higher on the prospect of Western financial aid.

The hryvnia has been falling for weeks but has accelerated since parliament stripped President Viktor Yanukovich of his powers on Saturday.

"If we look at historical precedents, five years ago the hryvnia was much stronger versus the U..S dollar. The economy was in a better shape, foreign exchange reserves were almost double current levels but the hryvnia depreciated almost 50 percent," said Tatyana Orlova, a strategist at RBS in London.

"If you take that as the benchmark it could go to 16 per dollar," she said.

Ukraine's interim leaders have said they will put the country back on course for European integration and a new government is expected to be sworn in on Thursday. A presidential election is due on May 25.

Kiev has also asked the International Monetary Fund to help prepare a new financial aid programme as it tries to meet its debt payments and an anti-crisis plan is being drawn up.

Ukraine's central bank does not plan to intervene in the foreign currency market to defend the country's currency in the coming days, the bank's governor, Stepan Kubiv, said on Wednesday.

Earlier, a senior official at the central bank had said it had abandoned a managed exchange rate policy in favour of a flexible currency..

Orlova said the hyrvnia could easily "overshoot" if the central bank did not defend the currency but added: "A big devaluation is not unjustified for the economy."

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