UPDATE 3-New controls in place, Ukraine tries to dampen currency fear
By Natalia Zinets
KYIV Feb 7 (Reuters) – Ukraine’s central bank tried to
dampen fears about its currency on Friday after imposing new
capital controls to bolster the hryvnia that banks said were
likely to cripple trade and lead to a currency black market.
Ukraine is struggling to prop up its currency amid a
political crisis that has seen anti-government demonstrators
take to the streets to protest against a move closer to Moscow’s
economic orbit, and a debt crisis that has left it on the verge
of bankruptcy.
Russia suspended a $15 billion bailout last week after
President Viktor Yanukovich, in a concession to protesters,
sacked the pro-Russian prime minister.
Moscow says it will only restart the funding once it knows
who will be the new prime minister. Yanukovich was due to meet
President Vladimir Putin in the Black Sea resort of Sochi, where
the Winter Olympics open on Friday night.
The central bank says the currency controls will be
temporary. They controls, announced late on Thursday and imposed
from Friday morning, include a limit on private transfers abroad
of around $5,700 a month and bans on purchases of foreign
currency for overseas investment or early repayment of loans.
“The central bank has effectively imposed capital controls.
The result will be a flourishing black market (in dollars),”
said Tatiana Orlova, an emerging markets strategist at RBS in
London.
She said it could send Ukrainians to the cashpoints to
withdraw hryvnias, although on Friday there was little sign in
the capital Kyiv that news had filtered through. Many
Ukrainians, hurt by earlier crises, keep their savings at home.
TEMPORARY CONTROLS
Central bank officials said the hryvnia was now at an
“adequate” level after a 10-percent slide since November, when
protesters took to the streets over Yanukovich’s rejection of an
EU trade agreement in favour of closer ties with Russia. They
stressed that the new controls would be temporary.
“There have been strains on the currency market recently,
but we are sure this is only a short-term trend,” the governor
of the National Bank of Ukraine, Ihor Sorkin, told a news
conference.
“The National Bank will strengthen monitoring control on the
market to try to reduce speculative demand …. When the
situation improves, these temporary measures will be removed.”
Ukraine’s foreign currency reserves fell to $17.8 billion as
of Jan. 31, their lowest since 2006, from $20.4 billion at the
end of December. The drop came even though Russia has paid the
first $3 billion tranche of the bailout.
The bank attributed the January drop in its foreign reserves
to debt repayments of $1.1 billion, including $650 million to
the International Monetary Fund, as well as interventions on the
currency market totalling $1.7 billion.
Among the new controls, clients wishing to buy foreign
currency will be required to tie up their funds for six days in
special accounts before receiving it. Insurance companies have
been banned from buying foreign currency to cover part of
insurance reserves.
Individuals can transfer abroad no more than 50,000 hryvnia
– now worth about $5,700 – in foreign currency a month. Some
exemptions will be available for purposes such as payments for
education or medical treatment.
The hryvnia fell below 9 per dollar on Wednesday for the
first time in five years. It traded at 8.53/8.56 against the
dollar on Friday at 1430.
The head of the bank’s monetary policy department, Olena
Shcherbakova, said the bank would continue to intervene in the
currency markets and the exchange rate for the hryvnia was
“adequate” at the moment.
“The situation is completely controllable and manageable,”
she said.