(Bloomberg) -- Ukraine halted a run of three interest-rate cuts as an acceleration in inflation prompted policymakers in the war-battered nation to signal that easing may only be resumed next year.
The National Bank of Ukraine held the key rate at 13% Thursday, as predicted by six out of nine economists in a Bloomberg survey. Three expected a reduction in borrowing costs of at least a quarter of a percentage point.
With Russia’s invasion in its third year, policymakers in Kyiv lowered the benchmark by a total of 2 percentage points at the last three meetings, with most signaling more room for easing last month. But price growth in June accelerated to the highest level since December, while a weakening of the hryvnia amid a surge in budget spending has increased costs for business and fueled inflation.
“The baseline scenario of the forecast assumes that the NBU will only return to a key policy rate easing cycle in early 2025,” the central bank said in a statement.
The decision to hold borrowing costs was taken to ensure the sustainability of the foreign-exchange market and bring inflation closer to the 5% target, according to the statement. The central bank pledged to maintain an “active presence” on the FX market.
Officials raised their forecast for inflation at the end of this year to 8.5% from 8.2%, with price growth seen slowing to 6.6% in 2025.
“Price pressures will persist in the coming months, fueled by further increases in business costs, higher excise taxes, the fading effects of last year’s large harvests, and the adverse impact of the summer drought on this year’s crop yields,” the NBU said. “Early estimates of inflation in July confirm its further acceleration.”
While officials highlighted a slowdown in economic growth in the first half of this year due to Russian attacks on energy infrastructure, they improved their full year forecast to 3.7% from 3%, saying “businesses have partially adapted to rolling blackouts.”
Policymakers upgraded their forecast for gross domestic product due to “an anticipated expansion of fiscal stimulus,” as well as moves to help restore electricity generation in the wake of strikes by Kremlin forces.
“The step-by-step normalization of economic activity and the steady pursuit of loose fiscal policy, combined with the development of export routes and the revival of external demand, will help speed up real GDP growth to 4%–5% in 2025–2026,” the bank said.
(Adds details on inflation, economy throughout.)
©2024 Bloomberg L.P.
