Ukraine: Central Bank to Raise Refinancing Benchmark

The Ukrainian central bank will raise its benchmark refinancing rate to 30%, a more than 10% increase of the current rate of 19.5%. The bank taking this step has been expected, as inflation rates are increasing rapidly and the hryvnia has lost nearly half of its value during 2015. The move by the central bank is designed to curb inflation and slow the devaluation of the hryvynia, though the success of the maneuver is ultimately contingent on two principal factors.

The first of these factors is the tenuous cease fire currently in place between Ukrainian military and Russia-backed rebels in eastern Ukraine. If the deal fails to hold true, ongoing instability will likely impede the ability of organizations such as the International Monetary Fund to provide Ukraine with bailout funds.

The second of these factors is economic. If actions taken by the central bank do not have the intended effect, or if measures that require Ukrainian entities to sell 75% of their foreign currency reserves are not respected, the aforementioned economic problems could persist.

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