Ukraine keeps policy rate unchanged, raises inflation forecast

Kyiv, July 21 (Reuters) – Ukraine’s central bank on Thursday kept its main interest rate unchanged at 25%, its highest level in seven years, and raised its inflation forecast for 2022 to over 30%.

Devastated by the war with Russia, Ukraine’s economy fell around 40% year-on-year in the second quarter of this year, the central bank said, opening up the possibility of keeping the key rate at 25% until the second quarter 2024.

“The base scenario of the macroeconomic forecast foresees that the key rate will be maintained at 25% at least until the second quarter of 2024,” the National Bank of Ukraine (NBU) said in a statement.

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Ukraine’s economy could contract by a third in 2022 before recovering next year, the central bank said. It is expected to grow between 5% and 6% in 2023 and 2024, he said.

The rate meeting came hours after the central bank abruptly devalued the hryvnia, the national currency, by 25% against the US dollar to help cope with the impact of the war. Read more

NBU Governor Kyrylo Shevchenko told reporters the devaluation would add 2-3 percentage points to inflation, a projection he factored into his new inflation forecast.

Another senior central official said the conditions were not right for a return to a floating exchange rate for the hryvnia.

Shevchenko said a new International Monetary Fund program was expected next year.

The central bank said Ukraine’s cooperation with its international partners would be a key factor in supporting the economy and contributing to its recovery.

A long war with Russia, which invaded on Feb. 24, was the main risk in its forecast, the central bank said. Read more

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Reporting by Natalia Zinets; written by Tom Balmforth, edited by Timothy Heritage

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