Dragon Capital, one of the largest Ukrainian investment companies, forecasts foreign exchange rate to be 7.5 grivna for 1 USD at the end of 2010. UR sees this prediction as too optimistic, considering recent sudden and sharp fluctuation of Ukrainian currency rate after the end of New Year vacations. Since 7th of December, grivna has lost almost 2.5% of its value against dollar during 4 days, reaching its September’09 levels – 8.20. Only due to intensive market interventions by National Bank of Ukraine, hryvna/USD rate is now 8.07.
These fluctuations are the reason for doubts regarding the peaceful future of grivna in 2010. According to Dragon’s forecast, the revalutaion will be supported by inflow of capital (strange assumption, considering worsening of financial condition of Ukrainian leading corporations) and economic growth (almost eqal to zero).
What was left out in Dragon Capital's assumptions is growth of public debt, worsening of quality of credit portfolios of Ukrainian banks, and predicted defaults of construction companies. All these factors, as well as possibility of sovereign defaults of emerging countries can cause zero capital inflow in Ukraine in 2010.
Regarding IMF loans, it is possible to predict that Fund will provide limited loans sufficient only for preserving national currency from sharp devaluation. Restriction of cooperation with the IMF in 2010 will be caused by overwhelming populism of Ukrainian government with its desire to control NBU and currency reserves.
To summarize, Dragon capital’s opinion represents the desired scenario for a sell-side company. Nevertheless, it seems to us in UR that the map of risks for Ukraine is a bit different.
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Opps -- in Odessa in Oct 2010, we have rising prices and increases in bank lending rates. With national public debt at around 70% and pessimistic forecasts for economic growht -- these are the warning signs of a grivna devaluation.
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