Ukraine Central Bank May Widen Hryvnia Band

Ukraine's central bank council may widen today the corridor in which the hryvnia trades in an attempt to curb inflation, Petro Poroshenko, who is head of the council announced today.

The Natsionalnyi Bank Ukrayyny council is discussing a widening of the trading band to 4.90-5.30 against the dollar, compared with 4.95-5.25 now, Poroshenko stated at an investment conference in Kiev.

``We may widen the band, but we are not going to strengthen the hryvnia,'' said Poroshenko. ``There is no trend to the hryvnia's strengthening.''

The Kiev, Ukraine-based central bank controls the hryvnia rate by selling and buying dollars unlike other European banks that use interest rates to tackle inflation. It strengthened the hryvnia to 5.05 against the dollar in April 2005 from as low as 5.6 in November 2004. The bank has kept the official rate at 5.05 to the dollar ever since.

Ukraine's inflation rate jumped to an eight-year high of 26.2 percent in March as global food costs soared and domestic demand rose after the government increased social spending. The central bank is also trying to fight inflation by demanding commercial banks cut household loans and increase reserves. The bank will sell more than three billion hryvnias ($600 million) through an auction to refinance lenders, Poroshenko said.

Ukraine Inflation March 2008

Ukraine's inflation rate rose to 26.2 percent in March, the fastest level in eight years, as global food prices surged, the government repaid people who lost savings when the Soviet Union collapsed, and Ukranian workers are out all over Eastern Europe filling gaps in local labour markets and sending remittances home. Inflation accelerated from 21.9 percent in February, the fastest pace in Europe for that month and the quickest in Ukraine since 2001, according to data released by the state statistics committee today. Consumer prices rose 3.8 percent in March from February.





Ukraine's inflation rate has more than doubled in the past year because of a surge in global food costs and rising wages produced by rapid economic growth and growing labour shortages. Consumption is also being fuelled by payments for savings lost when the Soviet Union collapsed and the state-owned Sberbank went bankrupt. Government payments alone may add 1.5 percentage points to the inflation rate this year, Economy Minister Bohdan Danilishyn said on Jan. 15. The rate, which the government aims to keep at less than 10 percent, may average 17 percent this year, according to International Monetary Fund estimates. The truth of the matter is that noone really knows at this point. Nor do we know how all this is going to end. Strangely few seem to be talking about the dangers of a "hard landing" in the Ukraine at this point, but looking how the inflation fire is now burning away out of control the danger of this must be very great indeed.