Ukraine will keep borrowing costs on hold as policy makers prepare to issue new economic forecasts that have been complicated by uncertainties brought by Russia’s invasion.
(Bloomberg) — Ukraine will keep borrowing costs on hold as policy makers prepare to issue new economic forecasts that have been complicated by uncertainties brought by Russia’s invasion.
The key interest rate will stay at 25% on Thursday, according to all economists in a Bloomberg survey, where it has remained since the central bank hiked by 15 percentage points to arrest a spike in inflation and a currency rout in June.
“I think the ‘no change’ decision is expected, no surprise here,” said Ivan Tchakarov, an economist at Citi EM. “But the new outlook would be quite interesting, as it will give very useful information about how the authorities see the situation at the moment.”
With no signal of a shift any time soon, investors are looking for indications in the forecasts that will also be published Thursday on whether the central bank will stick to its current outlook of 4% annual economic growth this year and inflation slowing to 20.8%.
Those forecasts, however, were made before Russia targeted civilian infrastructure, and particularly the power grid, in a bombing campaign that wrought damage across Ukraine and left millions of people and businesses without reliable supplies of electricity, heat and water.
The new projections are also fraught, depending on the hard-to-predict impact of further attacks on the power grid and potential offensives that both Kyiv’s forces and Russia’s are preparing.
The risk of lower-than-expected economic growth or even a further contraction, in combination with easing inflation due to robust foreign aid, may prompt the central bank to start loosening monetary policy earlier than planned, according to Tchakarov, who expects the benchmark to fall to 20% by year end.
The central bank has said it doesn’t plan to start rate cuts earlier than in April 2024, though some policy makers suggested a shift toward dovish moves at the last rate meeting.
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