KIEV, Oct. 28 – The National Bank of Ukraine on Tuesday let the hryvnia slide to 5.50 to the U.S. dollar in a move that may open the way for aggressive depreciation of the local currency.

The development de-facto confirms the report that the NBU on Monday scrapped the currency trading band of 4.60 to 5.40 to the dollar that was supposed to be in effect through the end of 2008.

At an emergency meeting Monday the NBU also adopted a new – much wider – currency trading band, but had refused to disclose its parameters amid fears the announcement would trigger panic.

The NBU’s policy switch is aimed at bringing the hryvnia’s value – now controlled by the central bank - closer to real market exchange rates that currently exceed 6.0 hryvnias to the dollar.

The hryvnia on Tuesday opened at 6.08 to 6.18 to the dollar in trading between commercial banks, but lost value to 6.20 to 6.30 by the end of the day and forcing the NBU to intervene to get the hryvnia back to 5.50/dollar, dealers said.

The pattern of the NBU’s recent interventions suggests it would probably be selling dollars at 5.60 hryvnias to the dollar on Wednesday, gradually closing the gap with the market exchange rate, analysts said.

The NBU already shelled out more than $3 billion, or 10% of its overall forex reserves, through interventions between October 1 and October 28, reacting to financial crisis that has been sweeping Ukraine.

As world steel prices collapsed, so did Ukraine’s steel export revenue, which accounts to 40% of the country’s overall exports, while demand for hard currency had accelerated to pay for natural gas imports.

The turnaround led to rapid depreciation of the hryvnia – by almost 30% - since October 1 if measured by exchange rates in trading between commercial banks without the NBU’s interventions.

Reacting to the growing pressure on the hryvnia and on the banking system, the International Monetary Fund on Sunday agreed in principle to lend Ukraine up to $16.5 billion in emergency financing over the next two years.

Petro Poroshenko, the head of the NBU’s Council, a strategic policy body that sets the band, said Monday that changes in the NBU’s exchange rate policy were approved by the IMF as part of the assembled financial rescue package.

The IMF’s loan, jointly with the NBU’s reserves of about $34 billion, would create a cushion worth more than $50 billion that should be enough to tackle the crisis, Poroshenko said. (tl/ez)