Ukraine’s Current-Account Gap Erodes Hryvnia Gains, VTB Says

MOSCOW, Russia -- Ukraine’s widening current-account deficit may damp gains in the local currency this year as global commodity prices rise, VTB Capital said.

Ukraine's 500 hryvnia (~$63) note.

The hryvnia may strengthen to 7.85 per dollar by year-end, compared with a February forecast of 7.75, Alexey Moiseev and Dmitry Fedotkin, economists at VTB Capital in Moscow, said in a report sent to reporters today.

It may gain to 7.60 by the end of 2012, compared with an earlier estimate of 7.62, they said. The hryvnia traded at 7.978 at 1:05 p.m. in Kiev.

The deficit in Ukraine’s current account, the broadest measure of trade, may widen to $5 billion, or 3 percent of gross domestic product, this year as global commodity prices rise, VTB said.

That compares with a forecast of 1.9 percent in February and the 2010 figure of 2.1 percent.

“Our new in-house view on commodity prices has led to a more pronounced deterioration in our estimate of the current- account deficit and thus has slightly limited the prospects of a stronger hryvnia appreciation in 2011,” Fedotkin and Moiseev said.

“For next year, we see a more pronounced improvement in the capital-account surplus, which would be more supportive for the hryvnia.”

The hryvnia has strengthened by 0.05 percent this year, according to Bloomberg data.

Ukraine’s central bank manages the exchange rate by buying and selling foreign currency.

Central Bank Governor Serhiy Arbuzo said April 6 the bank would continue to keep the hryvnia stable.

Ukraine, a former Soviet state, had a current-account gap of $793 million in the first quarter, compared with surplus of $57 million in the same period last year, as the cost of Russian natural gas jumped, the central bank said April 27.

Source: Bloomberg