KIEV, Sept. 4 – Ukraine’s currency, the hryvnia, on Tuesday resumed its decline against the U.S. dollar amid speculation the National Bank of Ukraine had been quietly injecting billions of hryvnias into the system.

The hryvnia, which opened at 8.13 to the dollar in trading between commercial banks, closed at 8.19/dollar by the end of the session. The interbank market at one point was close to a shutdown after the supply of dollars had dropped to zero.

The hryvnia began its slide against the dollar a week ago amid speculation that the NBU has been quietly printing money after the government had faced lower-then-expected budget revenue in July and August.

Government officials denied the central bank was making any monetary emissions to help to increase the budget revenue.

But a new round of speculations on Tuesday suggested the NBU had injected at least 4 billion hryvnias into the system in the form of refinancing loans to three undisclosed commercial banks.

The size of such loans was surprising after the NBU had been usually lending between 100 million hryvnias and 150 million hryvnias.

“The banks have taken this money to the interbank forex market to buy dollars,” Ihor Lutsenko, an editor at Ekonomichna Pravda, said Tuesday. “Of course, the market quickly ran out of dollars. The hryvnia said ‘ouch.”

The demand for dollars was so strong that at one point the market was close to a shutdown after no banks had offered any dollars to sell.

This prompted expectations from currency dealers for the NBU to come out with interventions to sell dollars from its force reserves, but nothing had happened, allowing the hryvnia to lose some of its value.

“It’s hard to say what’s going to happen tomorrow, but if the NBU stays away from interventions the hryvnia will continue to lose value,” a currency dealer said.

The speculations amid the banks also suggest the NBU has provide cheap loans to well-connected commercial banks that would buy Treasury bills to enable the government to get funds to close budget gap.

The developments come a week after former President Viktor Yushchenko, who was the country’s longest serving central bank governor, said Ukraine may be heading towards default on massive debts payments next year.

He said the government’s failure to resume borrowing from the International Monetary Fund over the past two years may force the central bank to start printing hryvnias to cover budget deficit.

The IMF suspended its $15 billion loan to Ukraine two years ago after the government had failed to stick to energy sector reform by hiking domestic natural gas prices.

Without the borrowing from the IMF other financial institutions, such as the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank, also withhold their lending programs.

An IMF team arrived in Ukraine last week on a seven-day mission to check whether the government is line with its economic and fiscal policy projections. (tl/ez)