NBU / facebook.com/NationalBankOfUkraine
Ukraine's central bank (NBU) said Thursday it leaves the country's benchmark interest rate unchanged after two months of cuts as inflation exceeded the NBU’s forecasts last month, according to Bloomberg.
“The 22% rate is optimal as of now,” central bank governor Valeriya Gontareva said during a press briefing in the Ukrainian capital on Thursday, Bloomberg reports.
"The main reason for this decision is the increase of short-term inflation risks,” she said.
The central bank is trying to balance a shrinking economy and inflation still the world’s second fastest behind Venezuela’s after having peaked at more than 60% in April. Bank Governor Valeriya Gontareva pledged last month to cut borrowing costs significantly if price growth subsides to 12% next year. Policy makers had been trimming borrowing costs as Ukraine’s recession showed signs of ending and as the conflict in its easternmost regions cools.
The hryvnia weakened for a third day, retreating 0.5% to 23.1 against the dollar as of 15:23 in Kyiv on October 29. More stability in the past year’s second-worst-performing currency is also soothing the economic backdrop. As the hryvnia plunged at the start of 2015, the central bank imposed capital controls and raised its key rate to as high as 30%.
Inflation slowed to 51.9% in September from 52.8% in August. Consumer prices rose more quickly in September than anticipated because of the delayed effects of the hryvnia devaluation and rising administrative tariffs, Gontareva said. Inflation may accelerate in October on a smaller-than-expected harvest and increasing heating prices.
Looking further ahead, weak domestic demand, low prices for commodities and Ukraine’s balanced current-account and fiscal policy are among reasons to expect a “disinflationary trend,” Gontareva said.
As a cease-fire holds in Ukraine’s easternmost regions, foreign-currency deposits rose for the first time in two years, increasing 1.4% to $15 billion as of October 1.
The central bank plans to buy more dollars in the market if supply exceeds demand, according to Gontareva. The monetary authority will also complete stress tests of Ukraine’s 20 largest banks by the end of November, she said.
Ukraine may receive the next tranche of an International Monetary Fund bailout by year-end, triggering a “significant” increase ininternational reserves, Gontareva said.