Ukraine hryvnia depreciates 25% since year’s start

The Ukrainian hryvnia was trading on Feb. 26 at UAH 10.5/USD, depreciating by more than 25 percent this year to its lowest level since its introduction in 1996. The new National Bank of Ukraine (NBU) Head Stepan Kubiv said on Feb. 26 that the NBU will not spend any more gross foreign reserves to support the hryvnia, a reversal of his statement two days earlier that the NBU would take steps to stabilize the Ukrainian currency.

Alexander Paraschiy: We view very positively the new government’s policy of finally allowing the hryvnia to depreciate.  What’s negative is it’s happening amidst a political crisis, thus threatening to significantly overshoot a balanced level.

We estimate that UAH 10/USD is close to the equilibrium level, assuming that external demand is favorable and there is no panic prompting further foreign capital outflow. Yet the NBU’s shifting hryvnia policy and slim gross reserves will make market players nervous. On the day of his appointment on Feb. 24, Kubiv spoke of his intention to stabilize the hryvnia. Most likely, his Feb. 26 statement about a larger-than-expected decline in gross reserves (he claimed to USD 15 bln from USD 17.8 bln at the end of January) motivated his policy change.

Assuming the interim Cabinet of Ministers is approved and Western funding is secured, we expect the hryvnia to stabilize at UAH 10/USD and hover at this level for several months.