KIEV, May 30 – The National Bank of Ukraine has been under political pressure to sharply appreciate the hryvnia against the U.S. dollar as a measure to fight inflation, President Viktor Yushchenko said Friday.

Yushchenko said the NBU should “urgently stop playing with the exchange rate,” insisting that high inflation was caused by rampant social payments this year, not by the central bank’s monetary policy.

“I have a favor to ask of you,” Yushchenko told Volodymyr Stelmakh, the governor of the NBU, at a meeting of the National Security and Defense Council. “Do not give in to that pressure and to that demagoguery that currently exists around the NBU.”

The comment suggests the appreciation of the hryvnia by 4% against the dollar overnight on May 21 may have been politically motivated, something NBU officials have so far been denying.

Prime Minister Yulia Tymoshenko has been persistently calling for the appreciation of the hryvnia in response to high inflation, which exceeded 30% if measured between April and April 2007.

Tymoshenko’s argument was that the NBU’s purchasing of U.S. dollars on the forex market has been steadily increasing supply of hryvnias in the economy to the level that it has been triggering consumer price hike.

But Yushchenko, himself a former long-term governor of the NBU, said the argument was misleading. He said those were not the monetary factors that had caused the skyrocketing inflation this year, but rampant social spending.

The response by appreciating the hryvnia would indeed reduce the amount of local currency injected into the economy, but Yushchenko said this may actually boomerang and hit the economy hard.

“I am just warning that the measures that are being implemented to reduce the money supply lead only to one thing,” Yushchenko said. “Each week the national economy gets less and less resources for its growth.”

Yushchenko has long been suggesting that Tymoshenko’s populist promise to pay out 120 billion hryvnias in frozen Soviet-era bank deposits within the next two years was the main cause behind the inflation.

That’s why the response to the problem must come from reducing budget spending, Yushchenko has insisted, not from sharply appreciating the hryvnia.

Tymoshenko, as well as Stelmakh, are members of the National Security and Defense Council, the country’s top security body.

Yushchenko did not directly mention Tymoshenko, but said “those who have listened” his address must read the message “between the lines.”

Meanwhile, an evidence has recently emerged that may well highlight the political pressure on the NBU.

On May 20, a day before the NBU moved to appreciate the hryvnia, a bill had been submitted to Parliament seeking to de-facto eliminate independence of the NBU.

The bill, drafted by Tymoshenko lawmakers, seeks to let the Cabinet of Ministers, as opposed to the NBU, to define the country’s foreign exchange rate policy.

Stelmakh on Friday criticized the bill, calling it “dilettantism” and “amateurishness.”

“You can submit whatever you want,” Stelmakh said at a press conference. “But there is the president who knows these issues.” (tl/ez)