(Bloomberg) -- Ukraine held interest rates steady and said borrowing costs will likely stay on hold until next year as policymakers in the war-battered nation gauge inflationary pressure and the results of next week’s US presidential election.
The National Bank of Ukraine kept the rate unchanged at 13% for a third consecutive meeting, it said in a statement on Thursday. The decision is in line with the forecast of seven economists surveyed by Bloomberg. The central bank said that level should hold until summer of next year.
“Given that inflation has not yet peaked, and that pro-inflationary risks have even increased for the coming months, the NBU believes it appropriate to remain cautious,” the central bank said.
Policy is focused on the Nov. 5 election in the US, which could have significant consequences for Ukraine’s economy. The country remains heavily reliant on funding from allies, above all the US. That support enabled Kyiv to maintain relative economic stability, with moderate inflation and robust foreign reserves.
While Vice President Kamala Harris, the Democratic candidate, has signaled she’ll continue to support Kyiv, a victory for Republican Donald Trump may jeopardize financial assistance. The prospect of curtailed aid could add pressure on the hryvnia and prices more broadly.
Central bank Governor Andriy Pyshnyi acknowledged the threat to financing from election uncertainty, saying “corresponding risks do exist.”
“We have witnessed how certain political processes in donor countries have primarily impacted the consistency of international aid flows,” Pyshnyi told reporters at a press conference following the rate decision.
Policymakers opted for a pause in July, anticipating an uptick in consumer inflation on rising costs and a weak harvest in the face of Russia’s invasion. The depreciation in the hryvnia has also raised pressure on prices.
The central bank raised its forecast for the consumer price index to 9.7% by the end of the year, while raising the forecast for economic growth in 2024 to 4% from 3.7%. It also edged up its forecast for foreign reserves to $43.6 billion as it expects an influx of $15 billion from international donors by the end of this year, it said.
Those reserves are viewed as sufficient to cover increased wartime budget spending and support the hryvnia, the bank said.
The government in Kyiv is also benefiting from a boost in demand for its international bonds, buoyed by the prospect of a Trump victory. Prices for securities issued as part of a recent restructuring deal, maturing in 2036, have surged by more than 20% since they started trading in September.
Investors may believe that the Republican leader could be effective in quickly restoring peace in Ukraine, said Mykhaylo Demkiv, an analyst with Kyiv-based investment firm ICU.
(Updates with forecast, US election details and forecasts from first paragraph.)
©2024 Bloomberg L.P.
