(Bloomberg) --
Ukraine's central bank bowed to recommendations from the International Monetary Fund and the president by watering down a proposed increase in interest rates this month, according to people with knowledge of the deliberations.
The National Bank of Ukraine's 10-member monetary committee initially voted 7-3 to propose raising the key interest rate by 2 percentage points to 11%, with one member suggesting an even steeper increase, minutes of the Jan. 20 session showed on Monday.
That was overruled by the bank's six-member policy-making board, which usually accepts the committee's recommendations, with a decision to hike by 1 point to 10%, according to the minutes.
The change came after the central bank brought the proposal for the bigger hike to the IMF, which is helping support Ukraine's economy and said the sharp increase would added pressure on markets spooked by the escalation of tensions with Russia, according to two people familiar with the discussion who spoke on the condition that they wouldn't be named.
President Volodymyr Zelenskiy also disagreed when Governor Kyrylo Shevchenko suggested a 2-percentage-point increase during a private discussion, according to another person with knowledge of the matter. The central bank and Zelenskiy's office declined to comment when contacted by Bloomberg. The IMF also declined to comment for now.
The disagreement may further undermine Shevchenko's position at the central bank, as the president was considering his dismissal last year due to a series of conflicts regarding personnel that led to exodus of reform-minded officials.
In November Zelenskiy said that Shevchenko would stay “as of today,” but declined to say whether that might change in the near future.
It also wasn't the first time the president criticized a central bank governor for keeping interest rates high.
Shevchenko's predecessor, Yakiv Smoliy, resigned citing political pressure in 2020 after Zelenskiy accused the central bank of hindering economic growth by keeping borrowing costs high.
Ukraine has pursued one of Europe's most aggressive monetary-tightening campaigns to counter a double-digit advance in consumer prices, increasing its benchmark six times since 2021.
In a recent interview with Bloomberg, Shevchenko said he had been under constant pressure since his appointment in 2020, saying “it's a stressful job.”
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