UAH: Record Lows Ahead

Having come under sustained downside pressure, and been released by the National Bank of Ukraine (NBU) from its tightly managed trading band on October 28, the Ukrainian hryvnia has continued to lose value, setting record lows in the process. Since September 1, the hryvnia has lost approximately 63% of its value. Given that the NBU's hands have now effectively been tied by the IMF , who, as part of their extension of US$16.4bn in emergency funding, required the central bank to maintain a minimum level of net international reserves and move towards a more free floating exchange rate (thereby halting its near daily interventions on the interbank market), we believe further losses lie ahead as the currency attempts to find its true market value. Although the unit closed at a record low of UAH7.6200/US$ on December 10, we expect further weakening in the short term towards UAH8.0000/US$, and do not rule out the possibility of further losses beyond this point.

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