Ukraine de­val­u­a­tion angst mounts as Yanukovych se­cures win

The Pak Banker - - Front Page -


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.

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