Ukraine Hikes Discount Rate from 6.5% to 9.5%, Overnight Rate to 14.5% to Halt Crash of Hryvnia

The Ukrainian Hryvnia has plunged six consecutive weeks to new record lows.



Since the beginning of the year, the Hryvnia has fallen from 8.26 to the US dollar, to 13.16 to the US dollar, a decline of 37.2%

On Monday, the Ukraine central bank pulled out the bazooka with a massive set of rate hikes.

Kiev’s central bank raised the benchmark discount rate from 6.5 per cent to 9.5 per cent and the overnight loan rate from 7.5 per cent to 14.5 per cent on Monday night.

“The central bank considers it necessary to take the step to increase the value of the national currency, to restrain inflation and to stabilise the situation on the money market,” the central bank said in a statement.

Foreign exchange reserves have fallen to barely two months’ import cover, and the finance ministry warned in March that it expected the economy to contract by at least 3 per cent this year.

The International Monetary Fund offered an $18bn package in late March to help Kiev face its economic crisis while it faces mounting external pressure from Russia, which has warned that it will halt gas exports to Ukraine unless it covers its unpaid bills.

David Cameron on Monday agreed to accelerate work on further possible sanctions against Russia after discussing the crisis with Angela Merkel, German chancellor, and François Hollande, French president.

But Britain remains cautious about imposing sanctions that could have an impact on the City of London’s reputation as an open global financial centre and on companies, notably BP, which have big investments in Russia.

British officials confirmed BP has warned ministers of possible repercussions if relations with Moscow deteriorate: the company has a 20 per cent stake in Rosneft, the Kremlin-controlled oil company.

Ukraine has 2 months of reserves left. Escalating sanctions will make the situation worse. IMF looting is sure to follow.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com