Ukraine’s hryvnia strengthened slightly from an all-time low of 5.9 to the dollar on Wednesday after the central bank offered to sell the greenback at 5.0 hryvnias, Reuters data showed.
The country’s main stock market was suspended for the whole day after falling 8% on Tuesday and the cost of insuring against a sovereign default climbed further. The hryvnia began sliding at the beginning of September when the impact of the global financial crisis on emerging markets became sharper, as investors scrambled for dollars and sentiment towards the region turned sour after Russia’s war with Georgia.
The central bank’s deputy chairman, Oleksander Savchenko, said on Tuesday the bank would intervene to strengthen the hryvnia to 5.0 per dollar “very quickly”. But the bank kept agitated dealers in suspense for several hours before making its offer. The central bank last intervened on Friday, selling $342 million for the first time since February at 5.0 hryvnias.
When the hryvnia sank to a new low at about 0800 GMT, dealers said buyers were looking for the dollar at 5.7-5.8 hryvnias, but those hoarding small amounts of the currency would only sell at 5.9. Dealers made no connection between the hryvnia’s weakness and political events in Ukraine, which is facing its third election in as many years after the collapse of the ruling coalition of parties linked to the 2004 ‘Orange Revolution’. President Viktor Yushchenko gave parties more time to find a solution after consultations, though politicians leaving the meeting said everyone appeared resigned to a snap poll.
One dealer said the central bank had sent banks a letter late on Tuesday warning them it had the authority to discipline them for irresponsible dollar rates at street exchange bureaux. The dealer said the reference was to the dollar’s street rate, but some traders became worried about displaying prices and resorted to over-the-counter trading. “Now banks are directly talking to each other,” the dealer said. The central bank was unavailable for comment.
Another dealer said he was not openly offering his dollars at 5.9 “because there is no market here”. Quotes for Ukrainian credit default swaps (CDS) -- the cost of insuring against default or restructuring -- rose to the mid-900 basis points from 850-1,000 bps on Tuesday.
“The world’s about to end so why would you trade Ukraine? It’s a basket case,” said one trader from a European bank. The PFTS stock exchange was suspended for the whole day after falling 8% on Tuesday and almost 50% since the start of September. (Reuters)