Macroeconomics
We expect Ukraine’s Hryvnia to repeat its stable performance of 2011 in the coming year, trading within a narrow range of 7.95 to 8.15 against the dollar. In this report we discuss the reasons for why we believe this will be the case, the most important of which are the continuation of the longstanding Ukrainian government policy of pegging the Hryvnia to the dollar, the absence of foreign speculative capital in Ukraine, and expected strong GDP growth of near 5% driven by domestic demand. The main source of pressure on the Hryvnia will be a negative current account balance. However, we believe that the government will be able to hold the current account deficit at 2.5% of GDP by restricting retail lending, thereby limiting the imports of big-ticket items such as automobiles.
