Ukrainian Inflation Holds Steady With More Rate Hikes in Store

Ukrainian Inflation Holds Steady With More Rate Hikes in Store

Ukraine’s inflation held steady last month as policy makers signaled more interest-rate hikes amid a persistent threat of war and a currency under pressure. 

Consumer prices rose 10% from a year earlier in January, matching the increase a month earlier, data showed Wednesday. The median estimate in a Bloomberg survey was for a 9.8% advance.

Ukrainian Inflation Holds Steady With More Rate Hikes in Store

Even though Ukraine’s inflation is leveling off, the country’s central bank remains on one of the most aggressive policy tightening campaigns in Europe as a conflict looms with more than 100,000 Russian troops at the country’s border. While the U.S. and other allies have warned of a full-scale invasion, Russia has insisted it has no such plans. 

Rate setters at the National Bank of Ukraine stepped up rate hikes as fears of war sent the hryvnia tumbling. In a meeting last month, policy makers proposed raising the benchmark by 2 percentage points, only to temper the move in response to pushback from the International Monetary Fund and President Volodymyr Zelenskiy. 

Inflation will slow due to base effects from last year, according to Konstantin Fastovets, an analyst at investment firm Adamant Capital. 

“But the central bank has to lift borrowing costs as it needs to show political will to calm the markets amid geopolitical risks and halt the outflow of capital from Ukraine due to higher rates in advanced countries,” he said.

  • Apart from the hryvnia, rising energy costs and wages are keeping upward pressure on prices
  • To tame inflation, the central bank is seeking another 1 percentage-point hike in the benchmark rate next month
  • The central bank revised its 2022 inflation forecast to 7.7% from 5%, with a return to target range as early as 2023

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