* Central bank raises rates by 300 bps late on Monday
* Currency soars but still vulnerable to political turmoil
* Had lost nearly two-fifths of its value this year
(dealers and analyst comments added)
KIEV, April 15 Ukraine's hryvnia surged 8
percent against the dollar on Tuesday after the central bank
raised interest rates by 300 basis points to defend the
currency, battered by political turmoil, Reuters data showed
The bank lifted its benchmark rate for the first time in
eight months late on Monday, to 9.5 percent from 6.5 percent, to
prop up the hryvnia, which had lost almost two-fifths of its
value since the start of the year due to Ukraine's conflict with
The bank also increased the overnight loan rate to 14.5
percent from 7.5 percent.
The hryvnia was up 8.1 percent at 12.59 to the dollar at
1110 GMT but analysts said it remained vulnerable to political
"We are seeing a bit of a short-term bounce in the hryvnia
on account of the rate rise," said Neil Shearing, head of
emerging markets research at Capital Economics in London.
The central bank said that its decision was necessary to
rein in inflation and calm money markets.
"The further trend is unpredictable. The rates are not key
factors which can help the hryvnia to stabilise," a Ukrainian
bank dealer said.
Political turmoil was having a bigger impact on the market
than central bank measures, he said.
The hryvnia has plunged in value due to the conflict with
Russia, and in particular its annexation of Crimea last month,
which has led to the most strained relations between Moscow and
the West since the Cold War.
"The market is very emotional and sensitive these days.
Exporters are not hurrying to sell their dollars. Clients say:
who can guarantee that we will not see foreign tanks in Kiev
soon,” another dealer said.
After the loss of Crimea, Kiev is struggling with an
uprising by pro-Russian separatists who have seized
administrative buildings, including arsenals filled with weapons
across the Donetsk region of eastern Ukraine.
Kiev said an "anti-terrorist operation" against pro-Moscow
separatists was underway on Tuesday, though the crackdown got
off to a slow start, if at all.
Kiev says the separatists are organized by Moscow, seeking
to repeat the seizure of the Crimea region.
The central bank's ability to support the hryvnia by
intervening to sell dollars is limited by tiny foreign currency
reserves, which shrank to about $15 billion at the end of March.
Ukraine has to repay about $10 billion in external debts this
year and needs several billion more to buy gas from Russia.
(Reporting by Natalia Zinets; Editing by Louise Ireland and