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KYIV, April 13 (Reuters) – Ukraine’s central bank will probably raise its key interest rate this week for the second meeting in a row as it steps up a fight to bring inflation back into its target range, a Reuters poll showed on Tuesday.
Ten out of 16 analysts foresee the rate rising to 7% from the current level of 6.5% at the April 15 monetary policy meeting. Three analysts expect an increase to 7.5%; the remaining three expect no change.
At its meeting in March, the National Bank of Ukraine (NBU) had raised the rate for the first time since 2018, bringing the level up from an historic low of 6% and signalling further increases were on the horizon.
Inflation climbed to 8.5% year-on-year in March compared with 6.1% in January, fuelled mainly by rising food prices, analysts said. The central bank’s target range is around 5%.
Rising prices pose a growing risk to the Ukrainian economy, which plunged into recession because of coronavirus lockdowns last year.
A stuttering reform agenda has prevented the government from securing more loans from the International Monetary Fund under a $5 billion deal, while an escalating military conflict in eastern Ukraine has fuelled tensions with Russia.
“This Thursday, the NBU is likely to raise the rate by 50 bp to 7% and in the new forecast to envisage further hikes to 7.5%, and possibly even to 8% during the next meetings,” analysts at brokerage ICU wrote.
“This revision of the interest rate path is also justified by rising U.S. Treasury yields, the global deterioration in risk appetite, which is exacerbated by growing geopolitical risks for Ukraine, and the lack of significant progress with the IMF.”
Oleksandr Pecherytsyn from Credit Agricole Bank Ukraine, who expects a rate increase to 7.0%, said the central bank has to weigh inflation risks with the overall performance of the economy.
“A sharp (rate) increase could negatively affect the economic environment which is already under the negative impact of quarantine restrictions. Especially since the program with the IMF is still under discussion,” Pecherythyn said. (Editing by Matthias Williams)