Ukraine’s central bank imposed limits on foreign-currency purchases, bolstering a sagging hryvnia after interventions failed to prop it up.
The monetary authority yesterday set a monthly cap on foreign-currency purchases for individuals and imposed a waiting period of at least six working days for companies and people.
Ukraine’s political crisis, in its third month, has rocked the hryvnia, squeezing reserves as authorities struggle to contain a record current-account gap. President Viktor Yanukovych traveled to the opening ceremony of the Sochi Olympics, where he is to meet the Russian president, who halted payments from a $15 billion bailout after nationwide protests led to the cabinet’s collapse.
“It may be difficult for the central bank to contain the situation until there is more clarity regarding a bailout from Russia or, potentially, from the West,” Ben Griffith, an analyst at Victoria 1522 Investments LP in San Francisco, said by e-mail. “The market needs to know what changes would cause Russia to pull its agreement or cause the Western bloc to step in with assistance.”
The hryvnia, which has fallen to a five-year low of 9 per dollar several times in the past three days, jumped 3.5 percent to close at 8.545 in Kiev, the biggest gain since September 2009, according to data compiled by Bloomberg. That pared its decline this year to 3.7 percent.
“The decision by Ukraine’s central bank to impose targeted capital controls should bring some short-term relief to the hryvnia,” Neil Shearing, a London-based analyst at Capital Economics, wrote in an e-mailed report today. “But it is unlikely to prevent further falls in the currency over the coming months.”
Fitch Ratings lowered Ukraine’s sovereign rating to CCC from B- with a negative outlook after political instability “increased markedly” since its last review Nov. 8, the debt evaluator said in a statement today. That puts Ukraine’s grade on the same level as Jamaica’s and below Greece or Egypt.
The yield on Ukraine’s dollar bonds due this June rose to 16.79 percent today from 16.67 yesterday, the highest since before the Russian bailout was announced Dec. 17.
Ukraine’s central bank sold $1.7 billion in January to support the hryvnia. The unit will trade in a narrower range as excessive demand for foreign currency is “sure” to fall, Ukrainian central bank Governor Ihor Sorkin said in Kiev today.
The monetary authority bought $84 million on the interbank market at a rate of 8.54 hryvnia per dollar, Interfax reported today, citing an unidentified person familiar with the matter.
In addition to the waiting period for companies, the central bank imposed a 50,000 hryvnia ($5,851) monthly limit on individuals’ non-trade foreign-currency purchases and banned the buying of foreign currency for early loan repayments or investments abroad. It also moved the hryvnia’s official exchange rate, used for accounting purposes, to 8.7 per dollar from 7.99, the first change since 2012.
Restrictions on capital flows, ranging from Argentina’s tax on vacations abroad to Malaysia’s stabilizing the ringgit after the 1997 Asian crisis, have had mixed results in boosting investor confidence in a country’s economy. Capital outflow restrictions can work “if they are sufficiently comprehensive to slow a sudden ‘rush to the exit,’” according to a report by the International Monetary Fund this month.
Russia, which bought $3 billion of Ukrainian bonds in December to help avert a default, has delayed the next tranche pending the formation of a new government. Former Prime Minister Mykola Azarov and his cabinet resigned last month after anti-government demonstrations turned deadly.
Violence flared again yesterday when a box marked as donated medicine exploded at the protesters’ headquarters, wounding an activist in the hand and eye and knocking him unconscious, headquarters chief Anatoliy Vedmid told reporters in Kiev. The Interior Ministry said on its website police were not allowed into the building.
After the explosion, Yanukovych said he wouldn’t escalate the crisis and he’d speed the release of detained protesters. The conflict erupted when he snubbed a co-operation pact with the EU in favor of the loan and a gas-price cut from Russia. Seven activists died during clashes last month after some seized government buildings in Kiev and across the nation.
“The political stalemate, exacerbated by a suspension of the Russian financial aid package, increases the risk of a sovereign default later this year,” Tatiana Orlova, an economist at Royal Bank of Scotland Group Plc in London wrote in a report yesterday.
The U.S. State Department blamed Russian “tradecraft” -- a word used to describe espionage activity -- for the leak of a private phone call last month between Assistant Secretary of State Victoria Nuland and U.S. Ambassador to Ukraine Geoffrey Pyatt in which Nuland said “F--k the EU,” in frustration with the bloc’s efforts to resolve the crisis.
German Chancellor Angela Merkel called the statement “unacceptable,” Christiane Wirtz, deputy spokeswoman for the German government, said today. Nuland called EU officials to apologize, according to State Department spokeswoman Jen Psaki.
The International Monetary Fund hasn’t received a Ukrainian government request to resume talks on financial aid, which would have to be tied to measures to improve the country’s economy, Gerry Rice, director of the fund’s communications department, said at a press briefing in Washington yesterday.
The IMF in 2010 agreed to lend $15.6 billion to Ukraine, freezing disbursements the following year after the government refused to raise domestic natural-gas prices to trim the budget deficit. Azerbaijan said it would contribute $1 billion to an IMF-led bailout to the Black Sea country, Asim Mollazada, a member of the Azeri parliament’s foreign relations committee, said today.
Foreign reserves shrank to $17.8 billion in January, the lowest since 2006, from $20.4 billion a month earlier, according data published by the central bank today. That was lower than the $18.7 billion median estimate of eight analysts polled by Bloomberg before the release.
Lawmakers yesterday agreed to work on potential constitutional changes sought by the opposition and may hold a special parliamentary session on Feb. 11.
Ukraine’s opposition criticized Yanukovych for leaving the country during the crisis. The EU’s foreign policy chief, Catherine Ashton, left after two days of meetings with the president and protesters.
“The people have been out freezing for three months and Yanukovych is going to the subtropics?” said Viktor Onoprienko, 65, in one of the occupied buildings in Kiev. “He should be working every day to solve the crisis, not meeting his pal Putin in Sochi. We’re up to our necks with problems and they’re talking about homosexuals.”
To contact the reporters on this story: Jake Rudnitsky in Kiev at firstname.lastname@example.org; Daryna Krasnolutska in Kiev at email@example.com; Andras Gergely in Budapest at firstname.lastname@example.org