Ukraine’s central bank tightened capital controls and announced more curbs may be on the way to stop the hryvnia’s meltdown, fueling a rebound in the world’s worst-performing currency this month.
The hryvnia gained 24 percent, trimming its drop in February to 41 percent, still the biggest monthly decline on record, according to data complied by Bloomberg. National Bank of Ukraine Governor Valeriya Gontareva announced restrictions on dividend payments and stepped up the scrutiny of imports after the currency’s plunge caused residents to withdraw deposits and undermined the country’s financial stability.
Policy makers are struggling to stabilize the hryvnia as Ukraine awaits the International Monetary Fund’s approval for a $17.5 billion emergency loan. While a cease-fire with pro-Russian insurgents has enabled the pullback of heavy weapons this week, authorities are grappling with a Russian threat to cut off gas supplies, dwindling currency reserves and an economy that shrank 15.2 percent in the fourth quarter.
“Panic must be stopped and we are doing that now,” Gontareva said in Kiev. “For the time being, we are working not on canceling restrictions, but on new ones.”
The hryvnia appreciated to 27.245 per dollar by 5:31 p.m. in Kiev, after weakening to a record 33.75 on Thursday. The country’s $2.6 billion of 9.25 percent bonds due July 2017 advanced 0.6 cent to 43.14 cents on the dollar, reducing the yield to 54.44 percent, compared with 41.08 percent on Jan. 30.
Gontareva said the hryvnia should be traded at about 20 per dollar and that capital curbs would be eased once the currency returns “back to fundamentals.”
“The hryvnia is suffering a crisis of confidence”, Timothy Ash, the chief emerging-market economist at Standard Bank Plc, said by e-mail. “An average of 25-30 for the year would be a real achievement.”
The central bank’s actions contributed to the unclarity over the hryvnia. Gontareva tightened capital controls three times this week and repealed one of the measures -- a ban on commercial bank purchases of foreign exchange for their clients -- after government criticism.
“This is no time for confusion, especially as the wait for the IMF lifeline continues,” Simon Quijano-Evans, the head of emerging-market research at Commerzbank AG said in an e-mailed note. “With every step of hryvnia depreciation, the size of any planned haircut on eurobonds increases,” he said.
Ukraine plans to start negotiations with creditors over making the country’s debt burden more sustainable after it gains access to IMF funds. The country seeks to save as much as $15 billion from a debt restructuring deal it wants to seal by June, Finance Minister Natalie Jaresko said Feb. 13.
Depositors have withdrawn 17.2 billion hryvnia ($631 million) from banks this year as the economy lost 2 percent of its output following Russia’s annexation of the Crimea peninsula last year and a further 15 percent from industrialized regions in the east that are under rebel control, Gontareva said.
Ukraine’s reserves stood at $6.4 billion as of Jan. 31, down from $20.4 billion at end-2013 before the country’s pro-Russian insurgency began. The reserves were probably in the range of $5 billion and $5.5 billion in February, covering about three weeks of imports, according to Goldman Sachs Group Inc. analysts Andrew Matheny and Clemens Grafe.