KIEV, May 21 – The National Bank of Ukraine, in a fundamental change of policy, on Wednesday let the hryvnia appreciate sharply against the U.S. dollar, beyond the level it had originally pledged to defend.

The NBU, which had promised to defend the hryvnia within the band of 4.95 and 5.25 hryvnias to the dollar in 2008, let the hryvnia appreciate to 4.85 from 5.05.

The move, which follows days of speculation and nervousness on the forex market, cames without any formal notice from the NBU that the previously declared band would no longer be honored.

“This is a shock by itself,” a currency analyst in Kiev said Wednesday. “But the way it was handled makes it even worse. This is not something you would normally expect from the central bank.”

The development may trigger major political repercussions. The opposition Regions Party, Parliament’s largest group led by former Prime Minister Viktor Yanukovych, has been holding an emergency meeting late Wednesday.

The development is a victory for Prime Minister Yulia Tymoshenko, who has been pushing hard over the past several months for the hryvnia’s appreciation.

Tymoshenko argued the stronger hryvnia would help the government better fight skyrocketing inflation, which had reached more than 30% if measured between April and April 2007.

The office of President Viktor Yushchenko has been until recently resisting the appreciation, arguing other anti-inflation measures, such as reducing budget spending, would be a more effective way to deal with the problem.

The hryvnia’s appreciation by 4% overnight is the second such steep appreciation over the past three years.

In April 2005, during Tymoshenko’s first term as the prime minister, the NBU let the hryvnia rise almost 3% overnight to 5.05 from 5.19 to the dollar, causing major economic turbulence and political repercussions.

Volodymyr Stelmakh, the governor of the NBU, was then summoned up to Parliament, and later to the office of Yushchenko, to explain the move. In his remarks, Stelmakh defended the move as an anti-inflationary tool, but had promised to never again resort to such drastic switch of the exchange rates.

The hryvnia’s sharp rise in April 2005, coupled with weaker steel prices on world markets, caused economic shake-up, slowing down the country’s exports and increasing imports. For the first time in several years Ukraine reported a trade deficit in 2005, following huge trade surplus the previous year.

Not only the Wednesday appreciation is steeper compared with the one in April 2005, it also goes beyond the currency trading band, a cornerstone of the NBU’s exchange rate policy since 1997.

The latest currency move comes as a surprise even to some insiders at the NBU.

Vasyl Horbal, a member of the NBU’s Council, a body that decides on strategic decisions, such as the currency trading band, hours before the appreciation issued a statement suggesting there will be no appreciation.

“I am confident the hryvnia’s exchange rate will be extremely stable,” Horbal, a member of the Regions Party, said in the statement. “The NBU will not resort to the appreciation of the hryvnia. It will not take such a thoughtless decision.” (tl/ez)