KIEV: Ukraine's central bank sees no reason for the hryvnia to fall in the near future thanks to its strong capital account, the head of the bank's supervisory council said on Friday.
Central bank council chairman Ihor Prasolov told Reuters in an interview that while the bank was adopting a more flexible exchange rate policy, it had no plans to switch to a free float.
Prasolov also said he expected Ukraine to reach a new agreement with the International Monetary Fund within the next two months to restart lending that was frozen in early 2011.
Ukraine's current account deficit is widening due to weak European demand for steel, the former Soviet republic's key export. But the central bank says it is fully covered by capital inflows.
"I think that the (2012) balance of payments will be roughly neutral,.. with a deficit or surplus of up to $1 billion," he said.
"The state, as a responsible borrower, will seek exchange rate stability. The Finance Ministry does not want to increase the cost of servicing domestic foreign-currency debt and external state debt."
The central bank council is a supervisory body whose members are appointed by the president and parliament to set policy goals for the bank.
The former Soviet republic has kept its currency loosely pegged at around 8 hryvnias per dollar since early 2010 through regular central bank interventions and a tight monetary policy.
Critics say this policy was driven by political rather than economic considerations and has hurt Ukrainian goods' competitiveness and triggered a credit crunch.
Half of respondents in the latest Reuters monthly poll on Ukraine predicted that the hryvnia will depreciate after the Oct. 28 parliamentary election and fall to 8.40-8.58 per dollar by the end of this year.
But Prasolov said Ukrainian exports, dominated by steel, relied heavily on imported components, such as energy and cost savings from a potential hryvnia depreciation would be negligible.
"Exporters may say that it would be better if the hryvnia weakened, but we can respond by saying that if it weakened by 10 percent, your costs would go up by 10 percent," he said.
Prasolov said the bank was adopting a more flexible exchange rate policy but was not prepared to float the currency at a time when Ukraine's economy was suffering from the euro zone debt crisis.
"It would be stupid to do this during a crisis, we can do it later, when we strengthen our economy," he said.
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