Ukraine central bank keeps key rate at 25%, sees quicker growth

Ukraine central bank keeps key rate at 25%, sees quicker growth

27 Apr    Finance News, PMN Business, REU

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KYIV — Ukraine’s central bank on Thursday held its main rate unchanged at 25% due to considerable inflationary pressure and security risks, and said it expected quicker economic growth this year.

The central bank, which has kept its main rate steady since the summer of 2022 as Russia’s war in Ukraine continues, indicated it could start a rate cut cycle in the fourth quarter of the year.

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“Keeping the key policy rate high will support the effects of the previous measures and leave room to increase further the investment appeal of hryvnia savings,” the central bank said in a statement.

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“At the same time, an improved macroeconomic situation, including faster slowing of inflation and accumulation of a comfortable amount of international reserves, creates prerequisites to revise the key policy rate forecast.”

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The central bank also announced its updated macroeconomic forecast. It had revised its forecast for gross domestic product growth up to 2% for 2023 from its previous target of 0.3%.

Serhiy Nikolaichuk, a deputy central bank governor, said a better situation in the energy sector was behind the improved forecast.

“We had expected a 30% energy deficit but in fact we had only a 15% deficit and there was no deficit at all from mid- February. There will be no energy deficit in the second and third quarters of the year,” he told an online media briefing.

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Russia began targeting critical infrastructure including energy facilities across Ukraine in missile strikes last October but Kyiv managed to restore power quickly after such attacks.

Central Bank Governor Andriy Pyshniy said financial aid from foreign partners could exceed $42 billion this year. The central bank foreign exchange reserves are forecast to grow to $34.5 billion at the end of the year.

The central bank said inflation was slowing faster than expected so far in 2023. It expects inflation to slow to 14.8% this year and continue to fall further to single digits. The bank expects inflation of 9.6% next year and 6% in 2025.

The central bank, which has pegged the hryvnia currency at 36.57 to the dollar, has also started working on a roadmap to start a gradual easing of restrictions on the foreign exchange market. (Reporting by Olena Harmash, editing by)

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