Hryvna May Strengthen Again

The deputy chief of Ukraine?s National Bank resigned earlier this week, as he disagreed with the bank over its policies over further hryvna strengthening. Concorde Capital: The announcement has been taken by bankers as a signal that the National Bank may again increase the value of the hryvnia in 2005. Last week, the NBU did not did not participate on the FX interbank trading market for two days, as was the case when the hryvna jumped from 5.30 to 5.05 UAH/USD in April. As a result, the interbank UAH/USD rate dropped from 5.00 to 4.88 last week, but it was restored by Monday this week, when the NBU bought out excessive dollar volumes. The market interpreted the NBU?s behavior as a signal of second-round hryvnia?s strengthening and rates on interbank loans in local currency rose from 2-3% to 8-12%. The NBU has pursued a policy of increasing the value of the hryvna to control inflation. Should it further this policy, we do not believe the USD/UAH exchange rate to fall below the 4.88 level. As of today, the NBU is maintaining its official USD/UAH rate at 5.05.