KIEV, Oct. 6 – The hryvnia plummeted against the U.S. dollar on Monday, effectively breaching the trading band that the National Bank of Ukraine had set for this year and next, underscoring extremely strong downward pressure.

The hryvnia closed at 5.28 hryvnias to the dollar in trading between commercial banks, compared with 5.0 to the dollar on Friday, dealers said.

The development effectively questions the NBU’s commitment to its policy of pledging to keep the hryvnia within specific trading band, suggesting the NBU may scrap the policy completely.

The NBU in July promised to keep the hryvnia between 4.65 and 5.05 to the dollar through the end of 2008, and three weeks ago pledged to keep the hryvnia between 4.60 and 5.10 to the dollar in 2009.

But the hryvnia’s rapid plunge to 5.28 on Monday underscores major downward pressure that the national currency is facing, as Ukraine’s exports had slowed and trade deficit had been growing steeply.

The hryvnia has been experiencing major pressures over the past three weeks, but the NBU had tried to play down steep exchange rate fluctuations.

For example, last week the NBU said the hryvnia had been facing downward pressure because Naftogaz Ukrayiny, the national oil and gas company, needed to buy undisclosed amount of dollars to pay for natural gas imports.

Meanwhile, statistics released by the NBU on Friday show the bank had spent at least $150.3 million in September to support the hryvnia on the interbank forex market, suggesting the real downward pressure may be actually worse then analysts had thought.

The NBU said its forex reserves dropped by a total of $534 million in September to $37.53 billion, which apparently reflects foreign debts payments in addition to the interventions.

Meanwhile, the trend may accelerate in October, as the NBU is thought to have spent at least $342 million on Friday, October 3, when the hryvnia had strengthened to 5.0/dollar compared with about 5.06/dollar on Thursday.

Some analysts said the NBU would have to spend at least $2 billion per month to keep the hryvnia at 5.05 to the dollar, the upper range of the trading band set through the end of 2008.

Fitch Ratings recently revised Ukraine’s outlook to ‘negative’ from ‘stable,’ citing the possibility of the currency crisis due to widening current account deficit, caused by increasing imports.

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. (nr/ez)