Ukraine national bank head suggests cancellation of dollar peg

NBU chairman Volodymyr Stelmakh said hryvna in recent years had become a stable currency and argued there was no longer a need for the government to intervene in currency markets to keep the value of the Ukrainian money within a set corridor. “We have already passed our period of childhood and youth (for the Ukrainian currency),” Stelmach said at a Kiev press conference.

Stelmakh heads the NBU’s council which, by vote, sets the country’s monetary policy. For the last decade the NBU has held the hryvna within a limited float pegged to the US dollar. An NBU decision to unpeg the hryvna from the dollar, and to allow the market to determine the value of the Ukrainian currency in the near future, was a likely decision in the near future, Stelmakh said. “Most likely, we will cancel the (limited float) corridor (tying the hyrvna to the dollar),” Stelmakh said.

Devaluation of the dollar and inflation within Ukraine have over the last year placed increasing pressure on the NBU to increase the value of the hryvna. Although the NBU has repeatedly intervened during the last twelve months to keep the hyrvna’s value low against the dollar, the dollar has lost some 20% of its value against the Ukrainian currency over the time period. Previous Ukrainian governments were devoted to a relatively cheap hryvna, as a prop to the country’s export-dependant steel, chemical, and food-processing industries.

The present pro-Western Ukrainian government is divided on a proper value for the hryvna, with some ministers supporting a cheap hryvna to help exports, and others arguing rising inflation especially for energy requires a stronger hryvna. The introduction of the hyrvna and tight monetary policy by the NBU ended hyperinflation in Ukraine by 1997. (m&c.com)