The hyrvnia slumped, extending its biggest monthly decline in more than four years, and Ukrainian bond yields surged on speculation the nation’s political crisis will worsen.
The currency of Europe’s riskiest sovereign, which is managed by the central bank, weakened 1.8 percent to 8.6175 per dollar by 7:24 p.m. in Kiev, extending its slide this month to 4.4 percent. That’s the most since August 2009. Yields on the government’s dollar notes due in June increased 1.07 percentage points to 14.69 percent, the highest since Dec. 16.
Ukraine’s opposition accused President Viktor Yanukovych of foul play as he went on sick leave yesterday, and the defense ministry asked for “urgent” steps to counter an escalation in the political crisis. The two sides are in dispute over steps meant to reduce tension in the wake of deadly anti-government clashes last week after Yanukovych rejected a cooperation deal with the European Union in favor of Russian aid.
“There was hope that negotiations might lead to some respite,” Ivan Tchakarov, a Moscow-based economist at Citigroup Inc., wrote in an e-mail. “Things are again looking less promising, hence the hryvnia suffers.”
While former Prime Minister Mykola Azarov resigned Jan. 28, the opposition has rejected an amnesty law he pushed through this week. Russia, which lent Ukraine $3 billion last month to help it avoid a default, should withhold further aid until Azarov’s government is replaced, President Vladimir Putin said Jan. 29.
Continuing tension between the government and opposition has increased the risks surrounding the hryvnia, which was previously supported by the prospect of consistent assistance from Russia, Morgan Stanley analysts including Alina Slyusarchuk in London wrote in an e-mailed report today.
Unrest has spread beyond the capital, with activists occupying or blocking access to several ministries and regional-government offices. The opposition says seven people have died and about 1,000 have been injured during the protests, while authorities have detained at least 116 on suspicion of taking part in the demonstrations.
The yield on Ukraine’s dollar debt maturing in April 2023 climbed 15 basis points to 10 percent today. The cost of insuring the country’s debt with credit-default swaps rose 42 basis points to 1,045, the highest since Dec. 13, according to CMA data.
The nation’s exporters were facing delays on the border after Russia introduced additional requirements, imposed fees and subjected them to more detailed inspections, according to a statement on Ukraine’s Employers Federation website.
The restrictions are weighing on 25 percent of Ukraine’s export revenue, equal to about $1.5 billion a month, the analysts at Morgan Stanley wrote. Ukraine posted a record current-account deficit of $5.7 billion in the third quarter.
International reserves of $20.4 billion, which have almost halved since 2011, will probably fall by as much as $2 billion in January as the authorities repay debt and attempt to prop up the hryvnia, according to the Morgan Stanley note. Households seeking hard currency may put further pressure on the exchange rate, the analysts including Slyusarchuk said.
Ukraine’s gross domestic product grew 3.7 percent in the fourth quarter, the statistics office said yesterday. Three-month forwards on the nation’s currency jumped to 8.9850 today from 8.78 a week ago, implying a depreciation against the dollar of 4.1 percent in the period.
“I do not think that it is driven by macro, if anything yesterday Ukraine’s GDP surprised on the upside,” Tchakarov of Citigroup said, referring to the currency’s drop. “It’s just lots of political noise that is very hard to read.”