Ukraine Central Bank Accuses Banks of Attacking Hryvnia

KIEV, Ukraine -- Ukraine's Central Bank on Tuesday accused a number of banks with foreign capital of launching speculative attacks on the hryvnia currency and threatened to exclude them from the market unless they stopped.

Ukraine's Central Bank

A central bank statement accused the banks of hatching a "plot" to destabilise the market by trying to sell unreasonable amounts of foreign currency on the market it tightly controls.

But dealers dismissed the statement as groundless. Some suggested it amounted to little more than bluster.

"An analysis of events in recent months on the currency market shows that specific banks have been trying to conduct improper operations by offering to sell large amounts of foreign currency which they did not have available," the central bank said in the statement on its website

"Unfortunately, such actions are mainly carried out by specific Ukrainian banks with foreign capital, in agreement with foreign banks," the central bank added. It did not name any banks.

"This can be seen as a plot aimed not so much at benefitting from speculation but rather at driving the foreign currency market into instability and fuelling inflation."

The central bank said it viewed these actions as "speculative attacks with the aim of deliberately destabilising the rate of the national currency".

Out of an overall total of 163 banks in Ukraine, 22 have foreign capital including 9 with 100 percent.

The Ukrainian central bank keeps a tight hold on the foreign currency market and has tried in recent months to prevent sharp upward movements of the hryvnia.

"This is a particularly heavy-handed way of verbally intervening," said Sonal Desai, analyst at Dresdner Kleinwort Wasserstein in Milan. "There's an escalation in rhetoric, which is trying to prevent the inflows from occurring."


Some dealers at banks in Ukraine with foreign capital were even more vocal in criticism.

"What sort of crime is this?" said one. "Every investor wants to sell dear and buy cheap."

"These words are absolutely senseless," said another. "We are breaking no regulations. Perhaps it's aimed at intimidating someone or other."

The central bank engineered a one-day three percent rise in the hryvnia in late April, sapping confidence in the market and has since intervened nearly every day to keep it steady.

In its latest intervention on Monday, it bought dollars at 5.00 hryvnias. And the bank has since last week adopted a practice of announcing early in the session parameters for possible intervention.

Some dealers said attempts to keep the hryvnia within certain limits would run up against a growing supply of dollars, particularly a probable influx of currency in response to plans to stage new privatisations of big industrial sites.

The central bank has failed to make good on promises to liberalise market operations despite appeals from President Viktor Yushchenko, dealers and the International Monetary Fund.

A government minister welcomed the resignation last week of a top bank official who wanted to maintain tight restrictions -- including a ban on buying and selling currency in the same day.

Source: Reuters