KIEV, Sept. 25 – The hryvnia lost value against the U.S. dollar on Thursday sliding below the level that the National Bank of Ukraine had earlier pledged to defend. The bank made no interventions.

The hryvnia closed at 5.08 to the dollar in trading between commercial banks on Thursday, compared with 5.06 to the dollar on Wednesday, dealers said.

The NBU, which earlier this year pledged to defend the hryvnia within the band of 4.65 and 5.05 to the dollar through the end of 2008, stayed away from making the interventions, the dealers said.

Fitch Ratings on Thursday revised Ukraine’s outlook to ‘negative’ from ‘stable,’ citing widening current account deficit and “growing risk of a currency crisis.”

President Viktor Yushchenko admitted Thursday Ukraine has been facing some economic challenges affecting the hryvnia, such as a slowdown in demand for steel, Ukraine’s major exports commodity, but also a decline of the stock market.

Yushchenko met NBU Governor Volodymyr Stelmakh on Sept. 22 to discuss the situation on the financial market.

“I am confident that Ukraine will handle the challenges that had affected our neighbors and we will adequately find a response to the threats,” Yushchenko said in a statement.

Meanwhile, the NBU’s failure to defend the band on Thursday effectively questions its commitment to protect the hryvnia within the previously declared range.

This comes four months after the NBU has unexpectedly let the hryvnia gain value against the dollar overnight beyond the level it had previously pledged to defend, leading to major political and economic repercussions.

The NBU currently has $38 billion in foreign exchange reserves that can be effectively used to protect the hryvnia, up 17.3% from early January, according to the bank.

The NBU’s Council, which sets the bank’s strategic policy, less than two weeks ago has announced that it would be protecting the hryvnia within a wider band of 4.60 to 5.10 to the dollar in 2009.

The NBU’s Board, which decides on day-to-day operations, has been previously in a clash with the Council over the band policy, but had later accepted it, abandoning plans for the hryvnia’s free float.

The hryvnia’s decline accelerated as businesses need more hard currency to pay for increasing imports, and the government had predicted that imports will outpace exports during the next four years.

Ukraine recorded $11.05 billion in deficit while trading with goods in January through July, a stunning increase from $5.11 billion reported in the same period a year ago, according to the State Statistics Committee.

Ukraine recorded $11.4 billion in foreign trade deficit in 2007, up from $6.7 billion in 2006, according to the committee.

But the government said recently the deficit will continue to increase at high pace during the next four years, rising to $25.2 billion in 2009, $31 billion in 2010 and $34.2 billion in 2011.

The figures suggest that demand for hard currency will be steadily growing in Ukraine as businesses will need more hard currency to pay for the increasing imports.

The NBU, which had been keeping the hryvnia at 5.05 to the dollar since April 20, 2005, suddenly let the hryvnia gain to 4.85 to the dollar overnight on May 21, triggering major criticism within the business community.

Ukraine’s steelmakers, the country’s biggest exporters, complained the rapid appreciation would slow exports and boost imports.

But the government of Prime Minister Yulia Tymoshenko pressed for the appreciation in hopes of slowing down rampant inflation this year. (tl/ez)