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Ukraine central bank hikes benchmark rate to aid currency

A Ukrainian national flag flies outside the Ukraine central bank in Kiev, Ukraine.
Vincent Mundy | Bloomberg | Getty Images
A Ukrainian national flag flies outside the Ukraine central bank in Kiev, Ukraine.

Ukraine's central bank increased its benchmark interest rate for the first time in eight months on Monday in a bid to defend its currency which has lost almost two-fifths of its value since the start of the year due to the conflict with Russia.

The central bank hiked the benchmark rate to 9.5 percent from 6.5 percent in its first change since August last year. The rate change will go into force from Tuesday.

Read More Latest on Ukraine and turmoil in the markets

"The central bank considers it necessary to take the step to increase the value of the national currency, to restrain inflation and to stabilize the situation on the money market," the central bank said in a statement.

Earlier on Monday, the bank raised its overnight loan rate to 14.5 percent from 7.5 percent, a move also expected to support the currency.

The central bank said on Monday the banking system had lost 10 percent of hryvnia deposit volumes since the start of the year. Foreign currency deposits fell 14 percent, it said.

Read MorePro-Russia separatist unrest spreads in Ukraine

In an interview on the sidelines of IMF-World Bank meetings in Washington on Sunday, National Bank of Ukraine Governor Stepan Kubiv said Kiev had started working on floating its currency, and planned to move to full inflation-targeting within 12 months.

Ukraine's annual inflation rate was 3.4 percent in March, according to the consumer price index, up from 1.2 percent in February. Inflation was 0.5 percent in 2013 but the government has forecast that will surge to 12 percent this year.

The government has announced an increase of over 50 percent in gas prices for consumers from May 1 after Russia increased its charges.

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