Hryvnia devaluation coming soon?

Here is a bit of crystal ball gazing, or maybe navel gazing, and quite possibly a completely misguided forecast for the period November 2012 and following months relating to the Ukrainian currency, the Hryvina.

Whilst no doubt the Hrynia will remain relatively stable against other currencies over the summer, primarily due to the parliamentary elections in October, although there are other factors as well, there are a number of indicators that would suggest the Hryvnia will devalue quite dramatically thereafter.

It is already noticeable that the National Bank of Ukraine is acting far more slowly when intervening in the monetary markets to support the unofficial Hryvnia/US$ peg.  It has, in the space of a few weeks, dropped from UAH 8 to $1 and now exchanges on the streets at UAH 8.1 to the $1.  A slide that seems likely to continue.

The question is how far?

Aside from the National Bank of Ukraine’s deliberate slow interventions, there is the matter of the IMF.  Not the suspended tranches that could possibly be used to artificially peg the Hryvnia to the US$ at 8/1 as the National Bank of Ukraine still has the capability to do that.  As I say it is a deliberately slow intervention by the NBU and a sign of what is to come.

I am not referring to the on-going stand-off between the current government of Ukraine, who having raised the prices of electricity and gas 50% at IMF insistence already, refusing to do so again - at IMF insistence - again.

The IMF is currently zeroed in on Article IV of the IMF Articles of Agreement to which Ukraine is subject.

In short, the IMF is pushing Ukraine to allow the Hryvnia to free float on the currency exchanges and if the NBU is not going to unofficially and artificially prop up the Hryvnia through intervention on the currency markets then devaluation is going to be the obvious result. (Not that the NBU is in a position to intervene ad infinitum anyway.)

The question is probably one of how far and how fast this devaluation will occur once the October parliamentary elections are over, rather than whether devaluation will be avoided.

If I had to put a provisional figure on it, I would estimate UAH 9 - 9.5 to the US$ - but it may be more, possibly even UAH 10.

And yes, I have put my money where my mouth is and sacrificed the extremely good interest rates on Hryvnia this week, changing all into Sterling, US$ and Swiss Franc, a policy I will continue until all becomes clear when a new parliament and new budget for 2013 become apparent, the dust settles, and a governmental policy becomes clearer.

As much as I do enjoy the very good interests on the Hryvnia and it pains me to act before the masses and any restrictions that may yet come in doing so, my good lady is rather pleased.  She thinks Sterling and the Swiss Franc are very pretty!