(Adds cbank, president aide, hryvnia dealers, Fitch, details)
By Natalya Zinets
KIEV, Nov 27 (Reuters) - Ukraine's hryvnia currency slumped to a new historic low on Thursday, but a senior central bank official said it was close to a balanced level based on economic fundamentals.
The weak currency, coupled with lower fuel and moderate gas prices, should help bring the current account into balance or a "minor" deficit and there was little chance of a sovereign or corporate default, Deputy Chairman Oleksander Savchenko said.
The hryvnia weakened to 7.25-7.5 to the dollar on the interbank market after the central bank failed to meet demand for the dollar at Wednesday's auctions and in low volumes of trade because of the U.S. Thanksgiving holiday, dealers said. "The rate we saw today, yesterday and the day before, is somewhat shocking but it is a proper assessment by business not only of the balance of payments but of our political crisis," Savchenko told a conference organised by Fitch ratings agency.
"I hope the rate will be no more than 7 hryvnias per dollar, or somewhere in the region of 7 hryvnias. We feel that we are near a balanced rate."
The hryvnia has been falling as the chief suppliers of the dollar to the market, foreign investors and Ukrainian exporters, have felt the impact of the global financial crisis. A fast accelerating current account gap has accentuated that weakness.
Ukraine has already received the first tranche of a $16.4 billion IMF loan, whose conditions were greater currency flexibility, fiscal prudence and bank recapitalisation.
The central bank has intervened almost every day since October, and carried out two dollar auctions in the past week, to stop the hryvnia's descent from spiralling out of control.
POLITICAL RISK
Only half of the demand for the dollar, or about $150 million, was met by the central bank on Wednesday, dealers said, indicating that it is putting a brake on spending its reserves.
"If the central bank continues to spend its reserves, it will simply postpone the process of correction," Savchenko said.
He also said companies and banks had $5 billion of foreign debt to pay off by the end of this year and $30 billion in 2009. With reserves at about $32.5 billion, "Ukraine has no risk of default", he said.
Dealers said they expected further weakening on Friday.
"Because (banks) couldn't buy dollars yesterday, today demand is higher and most likely tomorrow the dollar will go even higher," one dealer said.
The top economic aide to President Viktor Yushchenko, himself a former central bank head, said the bank should scrap its auctions as they only pushed the hryvnia lower by accepting the highest bids.
The criticism reflects the latest political chaos that has pitted Prime Minister Yulia Tymoshenko against the president.
The president called an early parliamentary election when a coalition in parliament collapsed, but has since postponed it. The lack of a majority leaves parliament unable to push through reforms needed for the IMF loan and to save the economy.
The IMF set fiscal and monetary targets that Ukraine must meet to receive quarterly tranches. Its Ukraine representative, Balazs Horvath, told the conference that political risk to achieving these goals was "considerable but not insurmountable". Fitch said a failure to implement the IMF programme could trigger a further downgrade after it cut Ukraine's rating to B+ in October.
"World Bank and IMF support for Ukraine are of course a positive factor," Fitch Director of Sovereigns, Andrew Colquhoun said. "But in our view there are execution risks to the policy package which lies behind the support and therefore the risks to Ukraine's outlook remain elevated." (Additional reporting and writing by Sabina Zawadzki; Editing by Ruth Pitchford)