Saturday, April 26, 2014

Twin Ukrainian shocks: tumbling hryvnia and sharply higher inflation

There’s a lot of panic in Ukraine now, and not only the prospect of a Russian military invasion. Everyone who buys anything (which is all of us) are alarmed at increasing prices and the decreasing value of the hryvnia, Ukraine’s battered national currency.

The turmoil in the country has pushed the hryvnia to all-time lows, spurring people to buy dollars and euros.

The hryvnia has dropped around 50 percent since the start of the year, before improving slightly to 11.3 against the dollar on April 17.

Ukraine’s financial solvency depends on receiving help from international creditors.

The International Monetary Fund is considering providing a $18 billion package, short of the $27 billion that Ukraine’s government thinks it needs over the next two years.

On April 14, the European Union approved a mid-term loan of $1.38 billion and an additional $848 million in micro-financial aid for Ukraine. The same day the United States agreed to provide a $1 billion loan guarantee. Meanwhile, the World Bank is going to transfer $750 million in May.

Moreover, the National Bank of Ukraine has raised its key interest rate – from 6.5 percent to 9.5 percent in a bid to strengthen the hrvynia. Besides, regulator has banned 14 commercial banks from interbank foreign exchange market for their speculations.

Government’s official forecast for the average rate of the hryvnia in 2013 is 10.5 to the dollar, while inflation expectations are at 12-14 percent. That is already happening, from the price of bus tickets to prices in groceries, pharmacies and restaurants.

People’s hryvnia wages and savings are simply worth less.

Complete story at - Twin Ukrainian shocks: tumbling hryvnia and sharply higher inflation

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