Ukraine hikes key interest rate to 25%

The move seeks to tame double-digit inflation in the country, according to the central bank

Ukraine’s central bank more than doubled its benchmark interest rate on Thursday in an attempt to tackle double-digit inflation and defend the nation’s currency, the hryvnia.

The rate was raised by a whopping 15 percentage points, bringing it to 25% from 10%, a statement on the regulator’s website says.

The emergency measure is meant to “revive interest in hryvnia assets, reduce pressure on international reserves and have a deterrent effect on inflation,” the bank explained.

“This is a decisive step from the central bank – there were expectations on the market of a significant hike, but nobody saw such an increase,” Oleksiy Blinov, the head of research at Alfa Bank Ukraine told Bloomberg.

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A slight increase in the key rate would not have had a significant impact on the financial and economic system, the regulator said, adding that it had kept the rate unchanged so far and that doing so was “justified in the face of the significant psychological shock caused by the war.”

Inflation in Ukraine accelerated to 16.4% year-on-year in April, and the National Bank of Ukraine expects it to have climbed even higher in May. The regulator cited high energy prices as a significant factor driving inflation higher.

The European Bank for Reconstruction and Development predicted last month that the Ukrainian economy would shrink by 30% this year. Ukraine’s Finance Ministry has forecast a 45% drop in GDP.

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