Ukraine’s central bank imposed limits on foreign-currency purchases after its interventions failed to alleviate pressure on the hryvnia, while President Viktor Yanukovych left to meet his Russian counterpart, Vladimir Putin.
The monetary authority’s measures include a waiting period of at least six working days for foreign-currency purchases by companies and curbs on individuals’ market access, according to a statement on its website late yesterday. It also moved the hryvnia’s official exchange rate, used for accounting purposes, to 8.7 per dollar from 7.99, the first change since 2012.
Ukraine’s political crisis, in its third month, is rocking the country’s currency as reserves are stretched too thin to finance a record current-account deficit. As the U.S. and the European Union discuss potential aid, Yanukovych traveled to the opening ceremony of the Sochi Olympics. He will meet the Russian president, who halted payments from a $15 billion bailout after the unrest led to the cabinet’s collapse.
“It may be difficult for the central bank to contain the situation until there is more clarity regarding a bailout from Russia or, potentially, from the West,” Ben Griffith, an analyst at Victoria 1522 Investments LP in San Francisco, said by e-mail. “The market needs to know what changes would cause Russia to pull its agreement or cause the Western bloc to step in with assistance.”
The hryvnia, which fell to a five-year low of 9 per dollar several times over the past three days, closed 0.9 percent weaker at 8.855 yesterday. It has lost 7 percent this year, the most after the Argentine peso among currencies tracked by Bloomberg. The currency will fall to a record 10 per dollar this year, according to Bank of America’s estimates.
The yield on Ukraine’s dollar bonds due this June rose 152 basis points, or 1.52 percentage points, to 16.28 percent yesterday, the highest since before the Russian bailout was announced Dec. 17.
In addition to the waiting period for companies, the central bank imposed a 50,000 hryvnia ($5,647) monthly limit on individuals’ non-trade foreign-currency purchases and banned the buying of foreign currency for early loan repayments or investments abroad.
Russia, which bought $3 billion of Ukrainian bonds in December to help avert a default, has delayed the next tranche package pending the formation of a new government. Ex-Prime Minister Mykola Azarov and his cabinet resigned last month after anti-government demonstrations turned deadly.
As violence flared again yesterday when a box marked as aid exploded at a donations center, wounding a demonstrator, Yanukovych pledged yesterday not to escalate the crisis and said he’d speed the release of detained protesters.
The crisis was sparked when Yanukovych snubbed a co-operation pact with the EU in favor of the loan and a gas-price cut from Russia. Seven demonstrators died amid clashes last month as the opposition seized government buildings in Kiev and across the nation.
Risk of Default
“The political stalemate, exacerbated by a suspension of the Russian financial aid package, increases the risk of a sovereign default later this year,” Tatiana Orlova, an economist at Royal Bank of Scotland Group Plc in London wrote in a report yesterday.
The International Monetary Fund hasn’t received a Ukrainian government request to resume talks on financial aid, which would have to be tied to measures to improve the country’s economy, Gerry Rice, director of the fund’s communications department, said at a press briefing in Washingtonyesterday.
The IMF in 2010 agreed to lend $15.6 billion to Ukraine, only to freeze disbursements the following year after the government refused to raise domestic natural-gas prices to trim the budget deficit.
Foreign reserves probably shrank to $18.7 billion in January, the lowest since 2006, from $20.4 billion a month earlier, according to the median estimate of eight analysts polled by Bloomberg before the central bank publishes the data tomorrow. Reserves fell to $17.8 billion as of yesterday, the Interfax news service reported today, citing a person it didn’t identify.
The National Bank of Ukraine “has and will” intervene to support the hryvnia “when needed,” Valeriy Lytvytskyi, an adviser to the central bank’s governor, told reporters today. The regulator has spent “hundreds of millions” of dollars to support the currency, he said.
Ukraine’s opposition criticized Yanukovych for leaving the country during the crisis. The EU’s foreign policy chief, Catherine Ashton, left after two days of meetings with the president and protesters.
“It is at that time, when we need to resolve political crisis and cut tension in the society,” Vitali Klitschko, head of the opposition UDAR party, said in a statement on his website.
Lawmakers yesterday agreed to work on potential constitutional changes sought by the opposition and may hold a special parliamentary session on Feb. 11. Yanukovych yesterday pledged to avoid escalating the crisis and said he’d speed the release of detained protesters.
That restraint may be needed after a box marked as containing medicine exploded yesterday, knocking an activist unconscious and injuring his hand and eye, the head of the demonstrators’ headquarters, Anatoliy Vedmid, told reporters in Kiev. The Interior Ministry said in a website statement that police were not allowed into the building.
“The people have been out freezing for three months and Yanukovych is going to the subtropics?” said Viktor Onoprienko, 65, in one of the occupied buildings in Kiev. “He should be working every day to solve the crisis, not meeting his pal Putin in Sochi. We’re up to our necks with problems and they’re talking about homosexuals.”