Ukraine’s hryvnia headed for the worst weekly depreciation in the world as the central bank limited the supply of dollars to protect reserves amid a delay in negotiations to release the next part of a $17.5 billion International Monetary Fund loan.
The currency weakened 2 percent to 25.675 per dollar by 2:51 p.m. in Kiev, the lowest level since a devaluation almost a year ago sent it to a record 34.247 per dollar. The hryvnia is set for a 4.4 percent decline this week, the biggest depreciation among all global currencies tracked by Bloomberg.
The Washington-based IMF has withheld a third $1.7 billion loan tranche since September after President Petro Poroshenko’s government delayed implementation of a pledge to overhaul its tax system and adopt a budget. While the fund’s executive board will probably unlock the next payment in February, the central bank has provided limited relief for importers seeking hard currency amid efforts to conserve reserves, according to Eavex Capital, a Kiev-based brokerage.
“When the year starts there is not enough export revenue to cover hard-currency demand,” said Dmitry Churin, an analyst at Eavex, who sees the hryvnia weakening to 26.50 by the end of the year. “It could be a temporary factor. If the IMF approves the disbursement of the next loan tranche, market players will see that Ukraine has financial support and the currency should strengthen back to 24 per dollar.”
The IMF program envisages an average exchange rate of 24.1 per dollar for 2016, compared with an average of 21.9 in 2015. Economists at the fund will probably revise estimates, including for 2 percent economic growth this year, at the loan review next month.
The National Bank of Ukraine sold $19.1 million dollars at a foreign-currency auction on Monday, compared with demand of $35.4 million. Daily turnover on the interbank market in the past days has been $200 million, Churin said.
The central bank may intervene to stop sharp declines in the currency, Governor Valeriya Gontareva told reporters in Kiev on Thursday after the monetary authority left the benchmark rate unchanged at 22 percent. Recent volatility is seasonal and the foreign-currency market “is more or less stable,” she said.