Hryvnia Slumps to Four-Year Low as Ukraine Protests Escalate

The hryvnia fell for a 10th day, headed for its weakest level in more than four years, as clashes on the streets of Kiev sparked concern that Russian aid may not keep the country stable until 2015 elections.

Ukraine’s currency, which is managed by the central bank, weakened 0.3 percent to 8.4025 per dollar by 3:49 p.m. in Kiev, extending losses since Jan. 7 to 2.1 percent. The yield on the country’s government bonds due 2023 rose 17 basis points to 8.54 percent after hitting a seven-month low of 8.32 percent Jan. 17.

Rallies against President Viktor Yanukovych sparked violent clashes between police and protesters for a second night before new laws to subdue demonstrations took effect today. The protests began two months ago when a European Union cooperation deal was snubbed in favor of a Russian bailout. While it has staved off the risk of default, the cash may not be enough to keep Yanukovych in power until 2015 elections, Nomura Holdings Inc. said.

“External creditors have higher tolerance for the political turmoil as long as there is a commitment for funds from Russia,” Dmitri Petrov, a London-based analyst at Nomura, wrote by e-mail today. “Households on the other hand, who experience the political uncertainty on a daily basis, reflect their views through currency.”

Ukraine’s international reserves, which the central bank can marshal in defense of the hryvnia, rose to $20.4 billion in December from a seven-year low of $18.8 billion in the previous month as Russian aid started flowing.

‘Bad Scenarios’

The central bank’s efforts to defend the currency may be limited as long as the hryvnia stays within the 8.5 per dollar mark allowed for in the country’s budget, Petrov said.

Ukraine’s UX Index of shares fell 1.1 percent to 885.09, extending this week’s drop to 3.9 percent, the biggest decline since the two days through April 3.

The cost to protect the nation’s debt against non-payment using five-year credit-default swaps increased 41 basis points to 762 basis points, down from more than 1,100 basis points in December, according to CMA data. Three-month non-deliverable hyrvnia forwards rose to 8.73 from 8.59 yesterday and 8.46 on Jan. 13.

“Credit valuations don’t embed the full likelihood of really bad scenarios that could unfold,” Petrov said. The risk of the hryvnia going beyond the 8.5 level is “very high,” he said.

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