Ukraine key rate world’s highest

KIEV: Ukraine’s central bank has raised its benchmark interest rate to the world’s highest, the fifth emergency move since the beginning of last week to arrest a plunge in the hryvnia as the nation moves closer to obtaining a bailout.

The National Bank of Ukraine raised its refinancing rate to 30% from 19.5%, effective yesterday, to stabilise the situation in the money and lending markets, governor Valeriya Gontareva said.

Higher borrowing costs will squeeze local companies and households already struggling with a recession. The decline in the hryvnia, the world’s worst performer in the past year, has spurred panic buying among shoppers and destabilised banks. Before opting to push the key rate to the highest since 2000, the central bank used tighter capital controls and a one-day freeze on currency trading to steady the hryvnia.

“The picture is being blurred: every day a different measure is taken,” said Simon Quijano-Evans, head of emerging market research at Commerzbank in London. “What the local population in particular needs is a clear policy picture from the central bank.”

The hryvnia, which has lost 60% against the dollar in the past year, has strengthened or weakened more than 15% on a single day on five occasions this year.

Policymakers are tightening policy as Ukraine is working to access an International Monetary Fund loan to stay afloat after fighting with pro-Russian separatists in the country’s east helped wipe 15.2% off the economy last quarter compared with a year earlier.

The regulator, which is also trying to prevent capital flight, retained a requirement for exporters to convert 75% of their foreign currency revenue.

As the economy deteriorated, the hryvnia went into a tailspin, sending inflation to 28.5% in January, the world’s secondhighest rate behind Venezuela.

Annual price growth may be as quick as 272%, with a monthly rate of 64.5% that would qualify as hyperinflation, according to estimates based on the hryvnia’s black market price by Prof Steve Hanke of Johns Hopkins University.

In a sign of contagion affecting the financial industry, the Ukrainian regulator declared Delta Bank, the country’s fourthbiggest lender, insolvent on Tuesday.

The hryvnia’s plunge prompted the central bank to tighten capital controls last week as reserves declined to the lowest in more than a decade in January.