Tags: Ukraine | Russia | Putin | currency

Hryvnia Extends World's Worst Slump Amid Bailout Talks With IMF

Tuesday, 18 March 2014 12:28 PM

Ukraine’s hryvnia slumped in the world’s worst currency rout this year on speculation the country will be forced to allow a devaluation under the terms of an international bailout program.

The currency depreciated 3.5 percent to 10.1 per dollar by 5:40 p.m. in Kiev, taking its 2014 loss to 18 percent, the worst performance among all currencies tracked by Bloomberg. The hryvnia pared an earlier 5.9 percent loss as Ukrainian bonds gained after Russia signaled it won’t invade other parts of Ukraine following the annexation of the Crimea region.

Ukraine, where protesters ousted pro-Russian President Viktor Yanukovych last month, is negotiating a rescue package from the International Monetary Fund to avoid default. The IMF previously recommended the central bank abandon market interventions propping up the hryvnia and let the currency float freely to constrain the widening current-account deficit and make the economy more competitive.

“The hryvnia is bound to have a depreciation trend due to significant external imbalances, capital flight and demand for foreign currencies by residents,” Eldar Vakhitov, an economist for emerging markets at Barclays Plc in London, said by e-mail today. “Crimea is not that important for Ukraine in economic terms. Its secession has no significant impact on IMF talks.”

The Ukrainian currency weakened beyond 10 per dollar for the first time ever on Feb. 26 after CNBC reported Ukraine had adopted a flexible exchange rate to replace its earlier peg to the dollar, citing Sergiy Kruglik, the central bank’s head of international relations. The move came after hryvnia purchases by the regulator slashed its foreign reserves to an eight-year low of $15.5 billion in February.

Bond Rebound

Global stocks gained today as President Vladimir Putin said Russia won’t further split up its western neighbor after a March 16 referendum in Crimea supported its secession from Ukraine. He called on lawmakers in Moscow to approve the absorption of the Black Sea peninsula occupied by Russian troops.

Ukraine’s bonds maturing on June 4 gained 0.5 percent to 92.89 cents on the dollar, cutting the yield by 210 basis points, or 2.10 percentage points, to 45.16 percent, according to data compiled by Bloomberg. The rate on the sovereign dollar notes due April 2023 slid 13 basis points to 10.79 percent while the Ukrainian Equities Index jumped 2.4 percent.

The 2014 bond yield has been retreating from a record 58.36 percent reached in intraday trading on March 12 after the IMF said in a March 13 statement its mission in Kiev will begin talks with the government on an economic program. The lender said its representatives plan to conclude the talks by March 21.

The IMF will probably offer $15-16 billion in financial assistance, Timothy Ash, a London-based economist for emerging markets at Standard Bank Group Ltd., said by e-mail today.

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Ukraine's hryvnia slumped in the world's worst currency rout this year on speculation the country will be forced to allow a devaluation under the terms of an international bailout program.
Tuesday, 18 March 2014 12:28 PM
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