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Ukrainian bank hikes interest rate to 30 percent

The interest rate was raised from 19.5 percent to 30 percent.

By Ed Adamczyk
National Bank of Ukraine chief Valeria Gontareva (CC/ wikimedia.org/ Podrobystio News Programming)
National Bank of Ukraine chief Valeria Gontareva (CC/ wikimedia.org/ Podrobystio News Programming)

KIEV, Ukraine, March 3 (UPI) -- Ukraine's central bank raised its benchmark interest rate Tuesday to stabilize its currency and keep the country solvent until loans arrive.

Valeria Gonterava, chief of the National Bank of Ukraine (NBU), announced a rate increase of 30 percent, up from 19.5 percent, as the country's Parliament voted to approve austerity measures, including pension cuts and a removal of subsidies to keep energy costs low, so Ukraine would qualify for an International Monetary Fund (IMF) loan. The rate increase, and a requirement that exporters keep no more than 25 percent of their reserves in foreign currency, is meant to strengthen the value of the country's currency, the hryvnia.

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The interest rate was raised from 14 percent to 19.5 percent in February.

The announcement pushed the value of the hryvnia to about 25 to the dollar; it traded at about 13 to the dollar in September, and has lost about 70 percent of its value since Ukraine's February 2014 political uprising. Of Ukraine's 200 banks at the start of 2014, 40 have gone into bankruptcy; Delta Bank, the country's fourth-largest, collapsed Monday. The rate increase, the highest in a decade, has the potential to add to a recession and damage the overall economy, which contracted by 7.5 percent in 2014.

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Loans to ruined banks will be available through the country's Deposit Insurance Fund, the NBU said, which means additional money will be printed to repay depositors, with the remaining banks expected to repay the money at 30 percent interest. It can be considered an assurance more banks will fail and the inflation rate will rise.

"Further capital controls (by the government) may be the next step, although the ones imposed so far don't seem to have been terribly effective," John-Paul Smith of the consultant firm Ecstrat told the Wall Street Journal.

The end of Delta Bank can be regarded in Ukraine's biggest problem; despite independence in 1991 and a growing interest in taking a position alongside Western European powers, corruption remains prevalent. The country's largest bank, Privatbank, is owned by oligarch Ihor Kolomoysky; it received an emergency loan of 700 hryvnia ($28.9 billion) from the government on Feb. 25, its second loan in two days.

A temporary solution is the arrival of an expected $17.5 billion loan from the IMF, to be considered at a Mar. 11 meeting in Washington.

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