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Ukraine’s Hryvnia Drops to Record Low on Moody’s Rating Warning
By Laura Cochrane
Feb. 24 (Bloomberg) -- Ukraine’s hryvnia tumbled, heading for a record low against the dollar, after Moody’s Investors Service said it may cut the country’s rating because political infighting is hampering efforts to avert a financial crisis.
The currency dropped 3.4 percent to 9.2600 per dollar at 1:40 p.m. in Kiev, below the lowest close of 9.1000 in December. Moody’s is reviewing whether to cut Ukraine’s current rating of B1, four levels below investment grade, it said today in an e- mailed statement.
The hyrvnia has lost almost 50 percent against the dollar in the past six months as reduced demand for exports and a lack of foreign credit causes Ukraine’s first economic contraction in a decade. The situation is aggravated by power struggles between President Viktor Yushchenko and Prime Minister Yulia Timoshenko, delaying decisions needed to revive the economy and putting Ukraine’s $16.4 billion International Monetary Fund bailout at risk, according to Moody’s.
“The rating warning does not come as a surprise, but reflects the current state of affairs,” said Dmitry Gourov, a Vienna-based analyst at UniCredit SpA. The currency may weaken to 9.8 per dollar by late March, Gourov said, adding that this level may be exceeded if “confidence tumbles.”
The hryvnia touched a record intraday low of 9.7813 per dollar on Dec. 18 after a government official said the weakening currency may trigger defaults on more than half of loans.
“The rating action reflects concerns about how persistent political uncertainty clouds the prospects for an orderly resolution of banking problems, in the context of a severe economic downturn,” Jonathan Schiffer, senior credit officer at Moody’s in New York, said in the report.
Loan Conditions
A cut by Moody’s would bring Ukraine in line with rankings by Standard & Poor’s and Fitch Ratings of B, which is five levels below investment grade. Both have the country on “negative” outlook, indicating they may fall further. S&P said Feb. 16 it may downgrade its rating more than one step, depending on clarification of how Ukraine will meet the conditions of its IMF loan program.
The IMF approved its loan for Ukraine in November on condition that the government balance its budget this year. Timoshenko’s Cabinet plans a 5 percent state-budget gap this year, putting the bailout in jeopardy.
Orange Revolution
Yushchenko and Timoshenko stood side by side during the 2004 Orange Revolution, which swept them into office on promises to raise living standards and move the country closer to the West. Since then, the two most powerful politicians have been in a battle, stalling changes and state assets sales while pushing inflation to the highest level in Europe.
Ukraine’s growth slowed to 2.1 percent last year, compared with 7.6 percent in the previous year. The economy may contract 9 percent this year, according to Alexander Morozov, the chief economist in Moscow for HSBC Holdings Plc, Europe’s biggest bank.
“Moody’s rating review will examine whether or not these disagreements can be resolved in a constructive manner such that the IMF package continues to function effectively,” according to the statement. Attempts by Ukraine’s central bank to arrest the 48 percent slide in the hryvnia over the past six months may also have “consequences” for sovereign credit ratings, Moody’s said.
Ukraine’s Hryvnia Drops to Record Low on Moody’s Rating Warning
By Laura Cochrane
Feb. 24 (Bloomberg) -- Ukraine’s hryvnia tumbled, heading for a record low against the dollar, after Moody’s Investors Service said it may cut the country’s rating because political infighting is hampering efforts to avert a financial crisis.
The currency dropped 3.4 percent to 9.2600 per dollar at 1:40 p.m. in Kiev, below the lowest close of 9.1000 in December. Moody’s is reviewing whether to cut Ukraine’s current rating of B1, four levels below investment grade, it said today in an e- mailed statement.
The hyrvnia has lost almost 50 percent against the dollar in the past six months as reduced demand for exports and a lack of foreign credit causes Ukraine’s first economic contraction in a decade. The situation is aggravated by power struggles between President Viktor Yushchenko and Prime Minister Yulia Timoshenko, delaying decisions needed to revive the economy and putting Ukraine’s $16.4 billion International Monetary Fund bailout at risk, according to Moody’s.
“The rating warning does not come as a surprise, but reflects the current state of affairs,” said Dmitry Gourov, a Vienna-based analyst at UniCredit SpA. The currency may weaken to 9.8 per dollar by late March, Gourov said, adding that this level may be exceeded if “confidence tumbles.”
The hryvnia touched a record intraday low of 9.7813 per dollar on Dec. 18 after a government official said the weakening currency may trigger defaults on more than half of loans.
“The rating action reflects concerns about how persistent political uncertainty clouds the prospects for an orderly resolution of banking problems, in the context of a severe economic downturn,” Jonathan Schiffer, senior credit officer at Moody’s in New York, said in the report.
Loan Conditions
A cut by Moody’s would bring Ukraine in line with rankings by Standard & Poor’s and Fitch Ratings of B, which is five levels below investment grade. Both have the country on “negative” outlook, indicating they may fall further. S&P said Feb. 16 it may downgrade its rating more than one step, depending on clarification of how Ukraine will meet the conditions of its IMF loan program.
The IMF approved its loan for Ukraine in November on condition that the government balance its budget this year. Timoshenko’s Cabinet plans a 5 percent state-budget gap this year, putting the bailout in jeopardy.
Orange Revolution
Yushchenko and Timoshenko stood side by side during the 2004 Orange Revolution, which swept them into office on promises to raise living standards and move the country closer to the West. Since then, the two most powerful politicians have been in a battle, stalling changes and state assets sales while pushing inflation to the highest level in Europe.
Ukraine’s growth slowed to 2.1 percent last year, compared with 7.6 percent in the previous year. The economy may contract 9 percent this year, according to Alexander Morozov, the chief economist in Moscow for HSBC Holdings Plc, Europe’s biggest bank.
“Moody’s rating review will examine whether or not these disagreements can be resolved in a constructive manner such that the IMF package continues to function effectively,” according to the statement. Attempts by Ukraine’s central bank to arrest the 48 percent slide in the hryvnia over the past six months may also have “consequences” for sovereign credit ratings, Moody’s said.
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