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PM meets NBU governor as hryvnia plummets
Journal Staff Report

KIEV, July 30 Prime Minister Yulia Tymoshenko Thursday had an emergency meeting with Volodymyr Stelmakh, the governor of the National Bank of Ukraine, after the hryvnia plunged against the U.S. dollar, fueling devaluation concerns.

Tymoshenko skipped a scheduled government meeting aimed at focusing on collapsing output in the chemical industry, and held a lengthy one-on-one meeting with Stelmakh instead, a source at the NBU said.

The meeting with Stelmakh had not been previously scheduled for Thursday, according to the governments agenda posted on its Website.

The developments come after the hryvnia steeply plunged against the dollar, breaching an important psychological barrier of 8 hryvnias to the dollar on Tuesday and Wednesday. The NBU has been trying to keep the hryvnia at 7.7 hryvnias to the dollar over the past five months.

The hryvnia lost value despite efforts by the NBU to support the local currency through selling $100 million in interventions, suggesting the downward pressure was strong.

The weakening hryvnia poses a major threat to the Ukrainian banking system by making it more likely that individual borrowers that had obtained hard currency loans over the past several year would default.

The hryvnias weakening to 8 hryvnias to the dollar would probably lead to between 20% and 30% of individual borrowers defaulting on their mortgage loans, an industry analysts said.

But the hryvnias plunge to 10 hryvnias to the dollar would have a dramatic impact on the countrys big and systemic banks, a development that may paralyze the countrys economy, the analysts said.

Tymoshenko on Tuesday said that the hryvnias fair value must be in the neighborhood of 6.5 hryvnias to the dollar, suggesting that the hryvnia is undervalued.

Oleksandr Savchenko, a deputy governor at the NBU, agreed that the hryvnia is undervalued. By citing the so-called Big Mac Index, which compares the value of a hamburger in different countries, he said the hryvnia is one of the most undervalued currencies in the world.

Savchenko said the cost of the same Big Mac hamburger in Kiev and in New York suggests the hryvnia must be trading at 3.8-3.9 hryvnias to the dollar.

But Savchenko also defended the existing official rate of the NBU at 7.7 hryvnias to the dollar as the rate that reflects Ukraines difficult economic and political situation, and rising social tensions.

Meanwhile, the release of the $3.3 billion installment from the International Monetary Fund is expected to calm down the market sentiment, analysts said.

The IMF decided on Tuesday to disburse the installment, increasing to $10.9 billion the amount of cash provided to Ukraine since November.

Valeriy Lytvytsky, head of the group of advisors to the NBU governor, said recently that the central bank stands ready to sell $2.8 billion through interventions in August to calm down the markets.

But on a pessimistic tone, Lytvytsky said that Ukraines balance of payment has not improved so dramatically since the start of the crisis in October 2008, and that is providing a negative pressure on the hryvnia.

"Some experts are constantly chanting the mantra that the balance of payments has evened out, and the worst is past, Lytvytsky said. I can say that this is an exaggeration. The net outflow under current financial operations in the first half still remains high."

Let's hope that our resources are sufficient to prevent a serious weakening of the forex rate," he said. (tl/ez)

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Currencies (in hryvnias)
  06.07.2020 prev
USD 27.17 27.18
RUR 0.380 0.386
EUR 30.51 30.66

Stock Market
  03.07.2020 prev
PFTS 499.5 499.5
source: PFTS


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