Ukraine Raises Key Rate as Tensions Flare in East

Ukraine’s central bank raised its benchmark discount rate to support the currency after clashes between pro-Russian separatists and government forces in the east of the country turned deadly.

The central bank in Kiev raised the rate to 9.5 percent from 6.5 percent tonight, according to a statement on its website, to halt the plunge of the hryvnia, the world’s worst-performing currency this year. Ukraine is facing its third recession since 2008 and dwindling reserves.

Amid the growing tensions, European officials agreed to add new names to a list of people facing sanctions following Russian President Vladimir Putin’s annexation of Crimea. Ministers accused the Russian government of stoking the latest unrest with the same methods it used to destabilize the Black Sea peninsula before moving to take it over. The U.S. also raised the prospect of further measures against Russia.

“In light of the latest events, we decided to expand the list of those subject to asset freezes and visa bans,” the EU’s foreign-policy chief, Catherine Ashton, told reporters after a meeting of foreign ministers in Luxembourg.

At least one Ukrainian serviceman died over the weekend, and armed separatists are occupying police and government buildings in cities across the east. NATO estimates that Russia has massed 40,000 troops in combat readiness on Ukraine’s border. Putin is getting many requests from eastern Ukraine “to intervene in one way or another,” his spokesman, Dmitry Peskov, told reporters today.

Hryvnia Weakness

The hryvnia reversed earlier losses to trade little changed at 12.7 per dollar after the rate decision. It has weakened 35 percent against the dollar this year, the most among more than 170 currencies tracked by Bloomberg. The central bank has refrained from market intervention since February as reserves plunged to $15.1 billion from $31.7 billion in April 2012.

The rate increase is “largely symbolic,” Frank Braddock, who helps manage $3.5 billion as a senior portfolio manager at JHS Capital Advisors, said by e-mail from Columbia, South Carolina. “Any slowdown in the sell-off is much more likely to be driven more by the optics of what Putin is seen to be doing going forward.”

Russia’s ruble declined to a three-week low today amid the increased tension, and the benchmark Micex stock index retreated 1.3 percent. Brent crude oil advanced to a five-week high.

‘Different Sanctions’

President Barack Obama may speak with Putin as soon as today, White House Press Secretary Jay Carney said. Peskov confirmed the call would take place.

Executive orders signed by Obama “allow for all kinds of different sanctions,” Carney told reporters in Washington, while declining to say whether Russia’s actions in eastern Ukraine would trigger additional penalties. “We’re assessing what they’ve done,” Carney said.

Jen Psaki, a U.S. State Department spokeswoman, said the administration is weighing further measures that may be aimed at individuals as well as against “certain sectors of the Russian economy such as financial services, energy, metals and mining, engineering and defense.”

The EU has previously blacklisted 51 Russian and Ukrainian political and military figures and is looking at how to inflict stiffer punishments without harming Europe’s still struggling economy, such as by provoking Russia to cut off gas and oil deliveries.

‘Third Tier’

EU officials said it’s unclear whether the new list will be drawn up before EU, U.S. and Ukrainian officials are scheduled to meet with Russia’s foreign minister, Sergei Lavrov, on April 17 in Geneva for talks aimed at reducing tensions.

“There will now be some rapid and important work on the exact numbers and names,” U.K. Foreign Secretary William Hague told reporters in Luxembourg. “We’ve also stressed the urgency of completing the work on a possible third tier of more far-reaching sanctions should those become necessary. The important thing is to have them ready, so that Russia knows it will pay an important economic price for a further continued escalation.”

A wider EU blacklist may hit “other entities” deemed to be involved in destabilizing Ukraine in addition to individuals, Irish Deputy Prime Minister Eamon Gilmore said. EU leaders may meet next week to decide on new sanctions against Russia, according to French Foreign Minister Laurent Fabius.

Camouflaged Gunmen

In the eastern Ukrainian town of Slovyansk, about 240 kilometers (150 miles) from the Russian frontier, protests escalated at the weekend. Camouflaged gunmen fired on government troops in an anti-terror operation, killing one and wounding five, the Ukrainian government said.

There were no reports of Ukrainian forces moving on the buildings after the passage of a 9 a.m. deadline set by acting President Oleksandr Turchynov.

Pro-Russian protesters also occupied police and local-government buildings in Horlivka, Kramatorsk, Donetsk and Mariupol, the Ukrainian Interior Ministry said on its website.

Turchynov sought to ease tensions by raising the possibility of holding a national referendum on the structure of the state together with presidential elections set for May 25, Interfax reported today. He said he’s sure people will opt for a united, independent Ukraine, according to the news service.

CIA Director

Carney, the White House spokesman, confirmed that CIA Director John Brennan was in Kiev over the weekend after the administration had previously refused to confirm Russian statements that the head of the Central Intelligence Agency had met with officials of Ukraine’s interim government.

Carney characterized it as part of a trip Brennan took to Europe for regular consultations with security officials.

Underlining the tension, two unarmed Russian SU-24 Fencer aircraft flew as many as 12 passes over 90 minutes near the USS Donald Cook in the Black Sea on April 12, Colonel Steve Warren, a Pentagon spokesman, told reporters today.

The destroyer was never in any danger, according to Warren, who called the flights acts “of unprofessionalism” by the Russians. The ship, equipped with the advanced Aegis air-defense system, wasn’t engaging in exercises at the time, he said.

To contact the reporters on this story: Volodymyr Verbyany in Donetsk, Ukraine, at vverbyany1@bloomberg.net; James G. Neuger in Luxembourg at jneuger@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Eddie Buckle

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