UPDATE 1-Ukraine central bank reshuffle weakens hryvnia

Published 09/02/2010, 09:06 AM
Updated 09/02/2010, 09:08 AM

* Top c.banker replaced by newcomer close to Yanukovich

* Hryvnia weakens after steady revaluation

* Naftogaz, other importers may have contributed to move (Adds hryvnia rebounding, comments)

KIEV, Sept 2 (Reuters) - The replacement of a senior Ukrainian central banker as part of President Viktor Yanukovich's power consolidation campaign has rattled investors, prompting the hryvnia to reverse its steady appreciation.

The hryvnia posted its biggest fall in six weeks on Thursday after the central bank's First Deputy Chairman Anatoly Shapovalov, who was closely involved with exchange rate decision-making, resigned on Wednesday.

The hryvnia touched its weakest level since mid-July of 7.905 per dollar on Thursday, according to Reuters data, before rebounding to 7.89, a level it had maintained throughout August, supported by strong revenues from metals exports.

Shapovalov was replaced by Serhiy Arbuzov, a 34-year-old banker with no prior central bank experience.

Anastasia Golovach, analyst at Renaissance Capital in Kiev, also linked the hryvnia's slide to possible buying of dollars by state energy company Naftogaz on the eve of payments for Russian gas and the usual autumn pick-up in importers' demand for foreign currencies.

A local trader agreed with the Naftogaz version.

"There's only one buyer (of dollars) that can move the market, which is Naftogaz. After its purchases, exporters and non-residents came up with selling," said a chief dealer at a foreign bank in Kiev.

He said the central bank "kept silence" and did not intervene on the market.

"Looks like no one is ready to make an interventions decision after shifts in its management", the dealer said.

The central bank, which has not announced any interventions since Monday, could not be reached for comment.

YANUKOVICH ALLY

Analysts see the reshuffle as part of Yanukovich's drive to fill key government positions with members of his team.

"The replacement of Anatoly Shapovalov by Serhiy Arbuzov ... highlights once again the gradual concentration of power in the hands of Yanukovich," Citi analyst Luis Costa said in a note on Thursday.

"Arbuzov, formerly the chairman of the board at Ukreximbank, has been very close to Yanukovich in the past."

Yanukovich has been strengthening his grip on power after winning presidential elections in January, naming a close ally as prime minister and sidelining the opposition.

"It's part of the political changes in Ukraine, just a continuation of the process by which the new administration is filling key positions with people aligned with the Regions Party," said UniCredit analyst Dmitry Gurov.

"But I don't think it's something that should be feared by the market; what is important is that there is continuity of policy and they have an IMF programme that gives direction to what the government and central bank need to do," Gurov said.

Gurov said he still expected the hryvnia to strengthen to 7.4 per dollar by the end of this year.

"There is a tendency for hryvnia appreciation and the central bank has been intervening to prevent it from rising. But I think they should stop doing that in October-November as the IMF has asked them to start liberalising the FX markets," he said.

"Also there will be a rise in inflation driven by the hikes in utility prices."

Last month Ukraine received the first, $1.9 billion slice of a $15 billion International Monetary Fund loan programme negotiated by Yanukovich's government, and a top official has said a second payment might arrive in December. (Additional reporting by Sujata Rao in London and Andrei Ostroukh in Moscow; Writing by Olzhas Auyezov; editing by Stephen Nisbet)

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