UPDATE 2-Ukraine strengthens currency controls as hryvnia plunges 10 pct


(Adds context on economy, analyst quote on outlook for hryvnia)

By Alessandra Prentice and Natalia Zinets

KYIV Feb 23 (Reuters) – The Ukrainian central bank moved to
impose currency controls as the hryvnia plunged another 10
percent against the dollar on Monday — a move analysts said
would do little to bolster the currency.

The hryvnia’s decline came amid growing concern a ceasefire
in eastern Ukraine will not hold. The currency has now lost half
its value in 2015, after falling by 50 percent over all of 2014.

“We will not allow the situation to get out of control,” the
head of the central bank, Valeriia Gontareva, said at a press
briefing. There were no fundamental reasons for the hryvnia to
weaken further, she said.

The average hryvnia rate slid 10 percent on Monday to a
fresh-record low of 30.55 to the dollar as of 1400 GMT, after
Ukraine’s military said ongoing rebel attacks were preventing it
from withdrawing its heavy weapons from the front line in
eastern Ukraine.

A trader at a large foreign bank in Ukraine said he was
seeing market rates at around 31.3-31.8 to the dollar.

“For now, the market is weakening and there’s no reason to
see it stabilising so long as the war rolls on,” he said.

The latest hryvnia level is nearly 30 percent weaker than
the 21.7 rate foreseen in Ukraine’ 2015 budget. If the weakness
persists, it will upset the government’s strict austerity plans.

“They plan to raise (energy) tariffs. But if hryvnia
devaluation continues, they will have to increase tariffs again
in two to three months,” said Vasyl Yurchyshyn, the director of
economic programmes at the Razumkov Centre think tank in Kyiv.

Under currency controls that come into effect on Tuesday,
the bank will verify all pre-payments for importers’ contracts
over $50,000, to ensure they are legitmate. Any importer with a
contract over $500,000 will need to have a letter of credit with
a top-rated foreign bank, she said.

Banks will also be prohibited from lending hryvnia to
companies for the purchase of foreign currency.

These measures and others in the central bank’s arsenal are
not enough to prevent further hryvnia weakness, said Oleksandr
Valchyshen of InvestCapital Ukraine.

“For people looking for loopholes, there are ways to buy
currency and do what they want outside the sphere of the central
bank,” he said. “At the moment, all flows want to head out by
any means possible.”

(Editing by Larry King)