Ukraine's Hryvnia May Weaken on Import Demand, Renaissance Capital Says

The hryvnia may weaken 0.6 percent against the dollar by the end of the year as increasing purchases of imported goods boost demand for foreign currency, Renaissance Capital said.

Ukraine’s currency may reach 8 per dollar, an almost eight- month low based on closing prices compiled by Bloomberg, by the end of 2010, Renaissance’s Ukraine analyst Anastasia Golovach wrote in a research note e-mailed today. The Moscow-based investment bank earlier predicted the hryvnia would end the year at 7.5 per dollar, the note said.

“Increasing demand for foreign currency in the retail market is a key risk,” Golovach said. For the hryvnia “the supportive factors are not in place anymore.”

Ukraine’s trade deficit widened to $4.64 billion through the end of August, from $3.453 billion through the end of July, according to government data. Consumer demand is “recovering faster than initially expected” and will bolster growth in imported goods, such as cars, which need to be paid for in dollars and euros, Golovach said. Net purchases of foreign currency rose to $1.5 billion in September and are likely to grow further as the year comes to a close, according to Renaissance estimates.

The hryvnia was little changed for the sixth straight trading day against the dollar, trading at 7.9502 by 2:57 p.m. in the capital Kiev. It has gained 1.2 percent versus the dollar so far this year, compared with the 1.2 percent decline in the Russian ruble and beating Kazakhstan’s tenge, which has added 0.5 percent, according to Bloomberg data.

‘Sharp Changes’

The Kiev-based central bank manages the exchange rate by selling dollars and euros and placing restrictions on the levels at which lenders are allowed to trade the currency. National Bank Governor Volodymyr Stelmakh pledged last month that the hryvnia would not end 2010 weaker than 8 per dollar. It banned the trading of hryvnia for future settlement last year and forced companies seeking dollars to repay foreign debt to prove their original loans were converted to hryvnia.

Central bank controls over the hryvnia will prevent any “sharp changes” in the currency, Golovach said. “The National Bank of Ukraine will continue to support the hryvnia via interventions.”

The hryvnia may strengthen 0.5 percent to 7.91 per dollar by the end of the year, according to the median estimate of 11 analysts and strategists surveyed by Bloomberg last week. The range was 7.65 to 8.1.

Capital Controls

Ukraine may become the next emerging market to introduce capital controls to prevent foreign investment from fueling gains in its currency, Deputy Prime Minister Serhiy Tigipko said in an interview Oct. 9. Developing nations from Brazil to South Korea have imposed restrictions on offshore investment in their assets and intervened in their currencies in a bid to thwart record inflows of foreign currency from inflating their exchange rates and reducing exporter competitiveness.

The International Monetary Fund, which approved Ukraine’s second loan since the start of the global financial crisis in July, isn’t pressuring the country to accept greater exchange- rate flexibility, one of the conditions of the loan, Tigipko said.

To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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