KIEV, May 23 – The National Bank of Ukraine remained sharply divided over the hryvnia’s future after its top governing body voted overwhelmingly in favor of the currency’s steep appreciation against the U.S. dollar.

The Board, which handles day-to-day operations, voted to override a veto from the Council, which defines long-term policy, de-facto confirming the hryvnia’s appreciation breaching the previously declared trading band.

The vote sets the exchange rate at 4.85 hryvnias to the dollar to be in effect through Monday, compared with 5.05 on Wednesday, the sharpest one-day gain by the hryvnia over the past three years.

The vote also de-facto abandons the currency trading band of 4.95 to 5.25 hryvnias to the dollar, which had been originally declared through the end of 2008.

In response, the Council has scheduled it own meeting for Tuesday, seeking to hear final arguments from the Board, and threatening to take unspecified regulatory decisions.

“We want to hear the arguments,” Vasyl Horbal, a member of the Council, said in a statement. “Perhaps, there is something, some information that we don’t know. But I doubt.”

Meanwhile, the NBU’s move to abandon the band, a policy that has been in effect since 1997, and the hryvnia’s sharp appreciation has been increasing political pressure on Volodymyr Stelmakh, the governor of the NBU.

Stelmakh was summoned up to Parliament on Friday to explain the move. Ironically, Prime Minister Yulia Tymoshenko’s group and opposition Regions Party joined forces in seeking the explanation.

Tymoshenko, in her comments on Friday, tried to distance herself and the government from the NBU’s decision to sharply appreciate the hryvnia, but criticized the Council for “political interference” with the central bank.

“I am very sorry that politics begin to interfere with the work of the National Bank, which the government has nothing to do with. This is very bad.”

Stelmakh, in remarks in Parliament on Friday, defended the move to appreciate the hryvnia, adding that keeping the hryvnia unchanged against the dollar would only fuel inflation.

“For the National Bank to keep buying hard currency and replenish forex reserves this means to aggravate the economy with excessive money and this would stimulate inflation,” Stelmakh said.

The NBU’s reserves rose to $33.3 billion as of early May, up from $32.4 billion as early January, and up from $22.3 billion as of early January 2007.

“Our forex reserves are at the level that allows up to pay for more than four months of imports,” Stelmakh said. “International standards call for [only] three months.”

Tymoshenko has been pushing for the hryvnia’s appreciation against the dollar as a way of fighting inflation, which has increased to more than 30% if measured between April and April 2007 – one of the highest inflation figures in the world.

The Council, which Thursday suspended the Board’s decision to appreciate the hryvnia, had argued that the hryvnia must return to within the trading band before taking any other decisions. It also promised to expand the band if the Board provides sufficient information to back the measure.

Petro Poroshenko, the head of the Council, on Sunday said the uncertainty may force the Council to cancel the very idea of setting daily ‘official’ exchange rates, which is a benchmark for the government’s tax settlements.

He again said the hryvnia’s value may return to its usual value as soon as within three or four months.

“No one can guarantee that the hryvnia - beginning from September-October - will not return to its previous position of 5.0 to 5.05 to the dollar,” Poroshenko said in a television interview. “There are objective reasons for that.” (tl/ez)