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Business & Finance

Ukraine to keep main interest rate at 6pc over inflation concerns

  • Ukraine received $2.1 billion from the IMF shortly after securing a new deal in June. But the programme has been derailed by concerns over Kyiv's performance on reforms.
07 Dec, 2020

KYIV: Ukraine will keep its key interest rate at an historically low level of 6pc this week, weighing the need to support a virus-hit economy with an expected rise in inflation and delays in receiving foreign aid loans, a Reuters poll showed on Monday.

The National Bank of Ukraine has gradually brought the rate down to 6pc in June from 18pc in April 2019.

Some 14 of 15 analysts forecast the rate to remain at 6pc at the next monetary policy meeting on Thursday.

One analyst forecast a rate cut to 5.5pc, saying the NBU had scope to do so as inflation was still relatively low -- 2.6pc year-on-year in October.

The Reuters poll suggests inflation could speed up to 3.4pc in November and to 6.1pc next year from 4.2pc seen at the end of 2020, thanks to the government's raising the minimum wage from Jan. 1 and higher state spending expected in December.

"A low level of current inflation on the one hand and expectations of its speeding up in the coming one to two months will prevent the central bank from changing the interest rate," said Oleksandr Pecherytsyn from Credit Agricole Bank Ukraine.

Sergiy Nikolaychuk from the brokerage ICU said relatively low inflation and a stable currency could allow the central bank to defer a possible rate hike until next spring.

But he said the NBU could not risk cutting the rate due to delays in Ukraine securing new loans from the International Monetary Fund and a 20pc wage increase from the start of 2021.

Ukraine received $2.1 billion from the IMF shortly after securing a new deal in June. But the programme has been derailed by concerns over Kyiv's performance on reforms.

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