Ukraine keeps interest rate at 25%, warns of high wartime inflation

KYIV, Sept 8 (Reuters) – Ukraine’s central bank kept its main interest rate unchanged at 25% on Thursday, warning of high inflationary pressure and saying an extended full-scale war with Russia remained the key economic risk.

Inflation rose to 22.2% year on year in July, reaching around 23% last month, though the growth in inflation was slightly slower than earlier forecast and inflation was set to remain under control, it said.

The central bank was ready to step in to hike the rate if required and to deploy other measures to protect its international reserves and maintain control over inflation.

“Inflationary pressure remains high,” it said.

“Effects of the war, in particular the destruction of production facilities and disruption of logistics, still have a major impact on prices of almost all goods and services in the consumer basket,” it added.

Buffeted by Russia’s Feb. 24 invasion, the government has forecast an economic contraction of 30-35% this year, while forecasts for gross domestic product in 2023 range from a further contraction of 0.4% to an expansion of 15.5%. read more

The central bank saw no grounds to revise the current official exchange rate for the hryvnia, the national currency, Central Bank Deputy Governor Serhiy Nikolaychuk told reporters at a briefing.

Ukrainian officials have estimated the country faces a $5 billion-a-month fiscal shortfall and outside financing has taken on vital significance for Kyiv as the war with Russia nears the seven-month mark.

“Ongoing international support will enable the (National Bank of Ukraine) to maintain international reserves at a sufficient level in the coming years,” the central bank said.

Ukraine turned to the International Monetary Fund for a new credit programme at the beginning of August.

Nikolaychuk told reporters after the rate meeting that active consultations continued between Kyiv and the IMF.

“We hope that as a result of these discussions, in the nearest future there will be official announcements on the formats of IMF support of Ukraine in (the current) conditions,” he said.

President Volodymyr Zelenskiy said on Wednesday that Ukraine needed a “full-fledged” programme of IMF financing. read more

Writing by Tom Balmforth;
Editing by Jon Boyle, Alexandra Hudson

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