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The National Bank of Ukraine (NBU) announced on December 10 that it had spent a net $1.7bn to support the Hrvyna in November. While the level of intervention illustrates how much pressure the currency remains under, administrative measures introduced in the middle of the month appear to be helping for now.

The NBU reported that it bought $613.5m on the interbank currency market through the month, but sold $2.272bn, as Kyiv struggles to avoid a potential devaluation on the back of the struggling economy and particularly weak steel exports caused by the Eurozone crisis.

While slightly down on the $1.8bn that the NBU sold on the market in October, November's sale of $1.66bn shows that pressure on the currency persists. The action caused hard currency reserves to drop by a further $1.5bn to leave them at $25.4bn.

However, analysts at VTB Capital note that intervention dropped off significantly in the second half of November, driven by the extraordinary measures the government has introduced in a bid to avoid a devaluation that some suggest should push the current down around 20% in order to reflect the fair value of the hrvyna.

"Since November 19, when the NBU introduced obligatory 50% FX sales by exporters, the situation stabilized," VTB notes, "with USD/UAH trading near 8.18 (down from the mid-month peak of 8.30) and no NBU interventions since then."

At the same time, the fervent buying of hard currency by the population has also been reduced, with retail purchases falling from $2.2bn in October to $1.5bn last month. VTB suggests "the drop in net [foreign exchange] demand from households likely reflected the reaction of the population to the rumoured (but not yet implemented) 15% tax on the sale of cash foreign exchange."

Buying time

Meanwhile, Kyiv has also been able to leverage the emerging market bond rally to replenish its hard currency reserves in recent weeks, and so buy itself a little more time.

In September, Ukraine borrowed $2bn in the international capital markets for the first time in three years at interest rates lower than Greece. VTB analysts argue the decline in reserves in November would have been even more pronounced were it not for this new inflow of hard currency.

However, issuing bonds is just a stop-gap measure, and Kyiv still faces huge challenges and decisions in order to deal with the fundamental problems afflicting the economy.

The biggest of these remains its dealings with the International Monetary Fund (IMF). The government expects an IMF mission in January to discuss the possibility of re-starting its $15bn stand-by agreement. The agreement was frozen in March 2011 due to Kyiv's refusal to raise tariffs on natural gas to households.

With parliamentary elections finally out of the way after last month's vote, the government has more leeway, but analysts still suggest a deal with the IMF is only possible after the 2013 winter heating season ends. That suggests the NBU will be forced to continue to support the hryvnia in the medium term at least.

At the same time, some analysts note that Kyiv could try to go it alone. Concorde Capital noted recently that the state spending plan for 2013 that was approved by parliament on December 6 gives the impression that authorities are preparing to face 2013 challenges without reliance on IMF funding.

"The budget's 7% year-on-year revenue growth plan looks feasible, and its targeted general deficit (including a Naftogaz subsidy) of 4.5% of planned GDP is manageable. Against this backdrop, external funding is critical but looks achievable. Moreover, it is set to keep external public debt/GDP as low as 0.2x and points to some easing of pressure on the local currency in 2013," Concorde says.