Ukraine to Allow Hryvnia to Drop 10% by Year-End, HSBC Says

Ukraine will probably let its currency devalue 10 percent to 9 hryvnia per dollar by year-end to restart International Monetary Fund financing, according to HSBC Holdings Plc.

“The sooner the devaluation of the hryvnia occurs, the better for the external balance, the economy and the markets,” Alexander Morozov, HSBC’s Moscow-based chief economist for Russia, Ukraine and Kazakhstan, said today in an e-mailed report.

The currency will remain under pressure because global demand for steel, the country’s main export, is unlikely to recover soon, according to Morozov. The exchange rate needs to weaken to 11 per dollar by end-2013 to trim the current-account deficit to 5 percent of gross domestic product from 10 percent now, he said.

Reserves at the central bank, which manages the hryvnia’s rate by buying and selling dollars, dropped to $29.3 billion in September from $30.1 billion in July as Ukraine prepares for parliamentary elections this week. The Washington-based IMF has sought a more flexible hryvnia as part of talks to unlock a bailout loan that’s been frozen since last March.

The currency traded little changed at 8.1605 per dollar as of 1:15 p.m. in Kiev, the capital.

The economy is in “stagnation or mild recession,” Morozov wrote, saying he may downgrade his 2012 growth forecast of 1.1 percent. Inflation probably won’t exceed 4 percent in December, he said.

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