Ukraine's hryvnia plummeted 30 percent against the dollar to a new record low Thursday after the central bank abandoned its efforts to prop up the currency.
The battered hryvnia -- currently the worst performing currency in the world -- tumbled to 24.6 to the dollar before recovering slightly.
The hryvnia lost some 50 percent of its value in 2014 as east Ukraine collapsed into bloodletting following the ouster of pro-Russian president Viktor Yanukovych last February.
Thursday's sharp fall in the national currency came after the national bank said it was ditching daily foreign currency auctions it used to keep the hryvna falling too fast and was instead boosting its key discount rate by 5.5 percentage points to 19.5 percent.
"The main reason for this decision is the rise in inflationary risks," the central bank said in a statement. Annual inflation rose to almost 25 percent in December.
Ukraine's foreign currency reserves have also fallen to their lowest point in over a decade to just $6.4 billion, the bank said.
A team from the International Monetary Fund is currently in Kiev for talks on a new financial rescue plan likely worth billions of dollars.
Analysts said that the move to slash the key interest rate showed the perilous position Ukraine is in as it waits for the IMF to make its decision.
"The decision by the National Bank of Ukraine to hike its discount rate from 14.0 percent to 19.5 percent this morning merely reinforces how vulnerable Ukraine’s external position is, particularly given that the conflict in the east has escalated again and a new IMF deal has yet to be agreed," said William Jackson, an emerging markets analyst at Capital Economics.
No amount for a new programme has been proposed, but the IMF has said the country needs some $15 billion more from all sources to keep its finances stable through the end of 2015.
The previous $17 billion aid programme agreed in April 2014 has proven inadequate to stabilise Ukraine's finances as the country fights a pro-Russia insurgency in the industrialised east, a fight that has left more than 5,350 dead and ravaged the country's economy.
The Ukrainian government says a new IMF deal is key to turning around the war-torn economy, which shrank 7.5 percent in 2014 and is projected to contract by another 5 percentage points this year.