Ukraine devaluation angst mounts as Yanukovych secures win

KIEV

Banks in Ukraine’s capital didn’t have enough dollars to convert Oleksandra Ratushnyak’s hryvnia savings this week so she spent the rest to offload a currency investors bet will slide after the ruling party won re-election.

“Nobody trusts the hryvnia,” Ratushnyak, a 29- year- old lawyer, said Oct. 29 in Kiev after buying $ 1,750 from three banks and being told four more had run out. “The exchange rate has been manipulated and no one knows how much it’s worth.”

President Viktor Yanukovych’s victory in Oct. 28 parliamentary elections divided investors and citizens in a nation where payments from bank loans to apartment rents are often made in dollars. While international bonds advanced on optimism devaluation will improve the balance of payments as the economy skids toward recession, citizens may be concerned about the value of their savings.

Dollar purchases by Ukrainians anticipating a weaker currency after the ballot were the highest in a year in September, official data showed, while the local units of UniCredit SpA (UCG) and OTP Bank Nyrt. reported increased demand for the greenback. The central bank has dipped into its reserves to defend the hryvnia, contributing to an almost $9 billion drop in the stash to $29.2 billion since August 2011.

Ukrainians are again becoming concerned about their currency, four years after the hryvnia lost more than half of its value following the collapse of Lehman Brothers Inc.’s in 2008. Economic output plummeted 7.8 percent and consumer prices surged 22.3 percent that year. The contraction continued at a 6.7 percent pace in 2009.

The currency, which has lost 2.2 percent this year, will retreat to 9.4 per dollar in six months’ time and 10.42 in a year, according to non-deliverable forwards, which in June predicted declines to 9.04 and 10.22. It was down 0.2 percent at 8.1964 at 12:19 p. m. in Kiev, data compiled by Bloomberg showed.

“Hryvnia stability is perceived as a political achievement on the part of the Ukrainian electorate,” Alexander Morozov, a Moscow-based economist at HSBC Holdings Plc (HSBA), wrote Oct. 22 in a note. After the election, “Ukrainian authorities’ hands may be untied and they may permit the hryvnia to devalue.”

After expanding 5.2 percent last year, Ukraine’s economy contracted 1.2 percent in the third quarter from previous three months as Europe’s debt crisis damped demand for steel, the country’s main export earner. Erste Group Bank (EBS) AG and HSBC predict a second-half recession.

The current-account deficit almost doubled through August to $8.6 billion as Russian natural gas prices rose. The gap will widen to 9 percent of gross domestic product in 2012, according to Morozov, who said a hryvnia rate of 11 per dollar is needed by end-2013 to narrow the shortfall to 5 percent. Investors and traders have been betting central bank support for the hryvnia will dwindle, helping stabilize the balance of payments, restore competitiveness and boost exports.

The government may also unfreeze a $15.4 billion loan from the International Monetary Fund, halted last year after Ukraine refused to raise household energy tariffs, Ronald Schneider, who helps manage 700 million euros ($910 million) in emerging- market debt for Raiffeisen Kapitalanlage GmbH in Vienna, said Oct. 22 by phone.

The Washington-based lender has urged a more flexible exchange rate for the hryvnia. Ukraine’s dollar Eurobond due 2017 climbed today, cutting the yield to 6.72 percent, the lowest level since it was sold in July. Credit-default swaps, which narrowed for four sessions, dropped 101 basis points last month to 605, reflecting an improved perception of risk.

Citizens stepped up dollar purchases as devaluation speculation intensified in a country where about half of outstanding retail loans are denominated in foreign currencies. They bought $2.9 billion in September, double February’s amount, central bank data showed.