KIEV: Ukraine's central bank said on Friday the hryvnia's exchange rate may be more volatile this year than previously expected but ruled out sharp rate moves ahead of key IMF talks.
"We have agreed with the International Monetary Fund that we will gradually increase the flexibility of the exchange rate and the magnitude (of fluctuations)," deputy central bank chairman Yuri Kolobov told reporters,
"Five percent is what we can allow within (this) year. There are no grounds for one-off devaluation or revaluation."
The bank had previously estimated the magnitude of exchange rate moves this year at two percent.
Analysts say the hryvnia's fate will depend on whether the IMF agrees to restart lending to Ukraine, halted this year due to Kiev's decision to delay some painful reforms such as raising the retirement age for women and hiking gas prices.
An IMF mission is due to arrive in Ukraine on August 29. Ukraine adopted a pension reform law in July but has yet to address the issue of gas prices for households which are heavily subsidised, making them a burden on the budget.
"Under an optimistic scenario, we are safe until mid-September and then, in October and November, (the situation) will depend on what comes out of the IMF (talks)," said Oleksiy Kozyrev, the head of treasury at Bank Khreshchyatyk.
The hryvnia has hovered at around 8.0 per dollar in August, down from about 7.99 per dollar in July. Analysts say the slight weakening was partly due to foreign investors selling about $100 million in government bonds as part of risk aversion tactics.
September is traditionally a nervous month for the hryvnia market following the sharp devaluation in late 2008.
"As soon as the hryvnia weakens significantly, the population will sharply increase foreign currency purchases and it will become even harder to support the exchange rate," said Maryan Zabolotsky of Erste Bank.
"It's a vicious circle which means it is easier for the central bank to make some sacrifices every month (by selling dollars) in order to avoid greater losses."
Copyright Reuters, 2011
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