Ukraine’s C-Bank Curbs Foreign Currency Buying to Stem Hryvnia’s Decline
Ukraine's central bank on Wednesday banned all foreign exchange purchases by companies through banks for the rest of the week in a bid to stem a sharp fall in the national currency, the hryvnia.
The central bank also intervened in the market to prop up the currency, buying USD 80 M at an official rate of 28 per dollar - close to the exchange rate at the start of the week and 12.8% higher than the close after a plunge on Tuesday, Reuters reported.
According to Kiev citizens, the hryvnia’s black market exchange rate is around 40 per US dollar, compared with around eight per dollar in January last year.
The fall in the hryvnia has gained speed in recent days as the government delayed voting on economic and financial measures needed to unlock a bailout from the International Monetary Fund (IMF) and fighting between government forces and pro-Russian rebels in eastern Ukraine raged despite a ceasefire that should have taken effect as of 15 February.
The truce seemed to be holding on Wednesday with Ukraine’s military reporting no combat fatalities during the past 24 hours.
The currency trading ban drew fire from Prime Minister Arseny Yatseniuk who said the government hadn’t been consulted on the move, which he described as bad for the economy.
After a meeting with President Petro Poroshenko, central bank head Valeria Gontareva and Finance Minister Natalia Yaresko both said the recent plunge in the hryvnia was unfounded and irrational and the currency would recover once the government in Kiev starts receiving bailout financing from the IMF.
"There are no fundamental reasons for such a severe fall in the hryvnia rate. The central bank sees none, the government sees none, and the IMF sees none," Gontareva said at a news conference.
Ukraine’s parliament is expected to consider the proposed measures needed to secure emergency funding from the IMF on 3 March. According to Finance Minister Yaresko, the IMF’s board of directors will meet on 11 March to decide whether to approve a new USD 17.5 B lending programme for Ukraine.
The hryvnia has lost about 50% of its value against the US dollar since the start of 2015 after halving last year compared to 2013.
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