Hryvnia May Fall 4% by Year-End on IMF Demands, ING Groep Says

By Emma O'Brien

Nov. 14 (Bloomberg) -- Ukraine's hryvnia may weaken almost 4 percent against the dollar by year-end as the International Monetary Fund urges the country's central bank to ease its support of the currency, according to ING Groep NV.

The currency may undergo ``another wave of controlled hryvnia devaluation to 6 per dollar at the year-end,'' Alexander Pecherytsyn, head of ING's financial-markets research in Kiev, wrote in a research note yesterday. The hryvnia weakened to 5.8575 per dollar as of 1:20 p.m. in Kiev, from yesterday's 5.7700.

``The National Bank of Ukraine, under pressure from the IMF, may be forced to re-introduce some flexibility to the hryvnia before year-end,'' Pecherytsyn said.

Ukraine's currency slumped 19 percent since the end of July as the seizure in global debt markets made it harder for the nation to fund its $8.4 billion current-account deficit. The collapse of the governing coalition in September also hurt the hryvnia. The IMF approved a $16.4 billion loan on Nov. 5.

The nation's foreign-currency reserves shrank 15 percent to $31.9 billion in October as Natsionalnyi Bank Ukrainy sold dollars to arrest the hryvnia's decline. Policy makers also barred banks from selling the currency if the rate exceeds the central-bank-set hryvnia rate by 1.5 percent. The official rate, used for government payments in foreign currency, was set at 5.7819 per dollar for today.

``The central bank is now trying to regain control,'' Pecherytsyn said. ``There is almost no free market after the new trading rules came into force.''

The IMF urged Ukraine to move toward a flexible exchange-rate regime and this may weaken the central bank's resolve to keep the hryvnia stable until early elections are held next year, he said.

The country, which borders Russia, received an initial $4.5 billion from the IMF, Ukraine's finance minister said Nov. 10. The international body may withhold the next tranche should Ukraine not work toward requirements attached to the loan. The government was told to cut the budget deficit, tackle inflation and run a balanced budget, IMF representative Balazs Horvath said this month.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net