UPDATE 2-Ukraine c.bank supports hryvnia, sees weakness ahead

Published 09/08/2010, 11:21 AM
Updated 09/08/2010, 11:24 AM

* C.bank chairman says hryvnia to weaken

* But bank supports currency by selling $33 million

* Hryvnia volatile since c.bank reshuffle (Adds intervention volume, c.bank and dealer comments)

KIEV, Sept 8 (Reuters) - Ukraine's central bank sent conflicting signals to the market on Wednesday, saying it expected the already volatile hryvnia to weaken in the coming months but supporting it at the present level.

The hryvnia will slip to 7.98-8.00 per dollar by the end of this year from the current level of 7.92-7.93, central bank chairman Volodymyr Stelmakh said.

"(The exchange rate at the end of this year will be) between 7.98 and 8.0 per dollar, not more than 8.0," Stelmakh told reporters.

However, minutes after his remarks which sent the hryvnia down to 7.9265 per dollar from 7.9200, the central bank renewed its support for the currency, offering to sell dollars at 7.9269.

The central bank said later on Wednesday it had sold $33 million, one-third of what it had to sell on the previous day to stabilise the weakened currency.

"The market has calmed down which is why we see the hryvnia strengthening. And the volume of bids for dollars has decreased significantly," central bank spokesman Serhiy Kruglyk said.

The hryvnia's steady appreciation was reversed by a central bank reshuffle on Sept. 1 which saw Stelmakh's first deputy Anatoly Shapovalov replaced by young banker Serhiy Arbuzov and prompted speculation about changes in the bank's policy.

Stelmakh's statement could be interpreted as an attempt to put a floor under the hryvnia's fall and prepare the market for a slow controlled devaluation similar to that carried out by Russia's central bank in late 2008 and early 2009.

However, unlike the rouble in 2008, the hryvnia was not seen as a one-way depreciation bet until now and some analysts had expected it to strengthen by the year-end on inflation concerns and a strong balance of payments.

"I do not fully understand Stelmakh's move," said a dealer at a Western bank in Kiev, adding that there were more sellers of the dollar on Wednesday than the day before.

"There were some foreigners who seem to have started buying Ukrainian bonds," the dealer said.

Some dealers said they saw Stelmakh's statement as a clear signal that the hryvnia would continue to fall against the dollar. But others expressed doubt, pointing out that his forecasts during the 2008 crisis proved to be inaccurate.

"Words are words, later they can say the economic situation has changed and hence the exchange rate is different," one of the dealers said. (Reporting by Pavel Polityuk and Natalya Zinets; writing by Olzhas Auyezov; editing by Stephen Nisbet)

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