KIEV, Aug. 25 - The International Monetary Fund said Thursday that speculative attacks have been putting upward pressure on Ukraine's currency and added the central bank should let the hryvnia gain value to ease the pressure.
The comment was released a day after the National Bank of Ukraine warned it could punish a number of unidentified foreign banks that had been apparently increasingly selling U.S. dollars for hryvnias.
The banks apparently move in anticipation of the hryvnia's appreciation against the U.S. dollar following comments from Ukrainian officials that the currency market will soon be liberalized.
"The NBU has continued to accumulate significant international reserves owing to more recent capital inflow attracted by appreciation expectation," the IMF said in a Ukraine policy statement.
The central bank let the hryvnia appreciate 2.7% overnight in April, causing shock for the economy and for people that had been keeping most of their savings in hard currency.
The IMF said should the central bank decide to support the hryvnia at the current level, the speculative attacks will probably continue as banks still view the hryvnia as undervalued.
"Current-account related inflows are likely to continue under the maintained peg, as the real exchange rate still seems undervalued," the IMF said.
The IMF recommended adopting a more flexible exchange rate policy, which means greater appreciation of the hryvnia. "It could help absorb shocks to Ukraine's highly open economy, stem speculative capital inflows attracted by perception of an undervalued currency," the IMF said.
The recommendation from the IMF comes in sharp contrast with an early reaction from the central bank, which indicated that it would rather "punish" foreign banks that "aim at destabilizing the exchange rate."
In a sign that the central bank has been defying the IMF recommendation, the NBU on Thursday intervened and purchased an estimated $35 million to help the hryvnia stay at 5.00 to the dollar. The hryvnia had been trading at 4.98 to the dollar before the intervention, dealers said.
The IMF said that adopting a more flexible forex policy "is neither simple nor risk free," must be well explained to the public to avoid a panic and could proceed gradually.
"In the interim, the NBU should continue to strengthen the pre-conditions for more exchange rate flexibility, including: developing the foreign exchange markets, in particular by allowing banks daily to trade foreign currency in both directions; and permitting forward operations," the IMF said.