Ukraine’s Hryvnia In ‘Sweet Spot’ On Inflows, RenCap Says

KIEV, Ukraine -- Ukraine’s hryvnia will stay in a “sweet spot” this year, appreciating 5.7 percent as capital inflows surge on the back of high metal prices and government bond sales, Renaissance Capital said.

“With the steel prices and export volumes near record levels and imports still depressed, the current account is almost guaranteed to return to the black,” Renaissance Capital said in a research note today.

“The government will inevitably tap international and domestic bond markets to fund its budget financing gap, resulting in additional net capital inflows.”

Ukraine’s currency has strengthened 1.2 percent against the dollar since the beginning of the year and traded at 7.9250 as of 12:55 p.m. in Kiev.

The hryvnia lost 41.6 percent versus the dollar from September 2008 to December 2009, making it the worst performer among 127 currencies tracked by Bloomberg in the period.

Since forming a Cabinet sympathetic to President Viktor Yanukovych this month, parliament has moved closer to committing to budget cuts needed to unblock a $16.4 billion loan from the International Monetary Fund suspended since November.

A Eurobond sale may be as early as May or June, Deputy Finance Minister Andriy Kravets said March 18.

The hryvnia won’t appreciate “seriously” and will reach 7.5 versus the dollar by the end of the year, analysts led by Alexei Moiseev at the Moscow-based bank wrote.

“The central bank’s main policy line will be to keep the maintenance of a stable currency as a key priority,” they said. “Ukraine needs to remonetise its economy and recover international reserves.”

Source: BusinessWeek