Ukraine Reverses July’s Cut in Overnight Rate as Hryvnia Sinks

Ukraine’s central bank reversed last month’s cut in its overnight lending rate as the hryvnia, this year’s second-worst performing currency, declined to near an all-time low.

The Natsionalnyi Bank Ukrainy increased the overnight refinancing rate to 17.5 percent from 15 percent and the overnight rate for deposit certificates to 7.5 percent from 5 percent, effective today, according to a website statement. It didn’t provide an explanation for the move and spokesman Oleksandr Kutereshchyn declined to comment immediately.

Pressure on the hryvnia will be “more constrained” as a result of the increases, Alexander Valchyshen, head of research at Investment Capital Ukraine, said by e-mail.

The hryvnia has weakened 37 percent against the dollar this year, with Ghana’s cedi the only currency losing more, data compiled by Bloomberg show. Ukraine, whose economy is forecast by the government to shrink to 6 percent in 2014, turned to the International Monetary Fund for $17 billion of assistance as a pro-Russian insurgency ravages its easternmost regions, home to the nation’s industrial heartland.

Receipt of the second tranche of financial aid from the IMF will help stabilize the hryvnia, Prime Minister Arseniy Yatsenyuk said today. The Washington-based lender has said Ukraine qualifies for the $1.4 billion disbursement, which may be approved by Aug. 29, according to Yatsenyuk.

Benchmark Rate

The bank raised its benchmark discount rate by 3 percentage points for the second time this year on July 17. It increased the rate to 12.5 percent, the highest level since 2001, from 9.5 percent.

The central bank raised its overnight rate to 14.5 percent from 7.5 percent in April and increased it again to 17.5 percent on July 17. Six days later it trimmed the rate to 15 percent.

The latest interest-rate changes may help curb inflation, according to Valchyshen. Consumer prices rose 12.6 percent from a year earlier in July after a 12 percent increase in June.

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