Natalia Zinets

KYIV, Reuters – Ukraine’s central banks raised their main interest rates to 10%, from 9%, on Thursday. It did so to address persistently high inflation, and to counter the effects of a Russia standoff.

National Bank of Ukraine, (NBU), indicated that it may raise rates once more at its March policy conference and suggested that monetary conditions would continue to be moderately tight. They will also raise banks’ reserve requirements for next month.

As Russia deployed tens and thousands of troops close to Ukraine’s borders, tensions have ravaged Ukraine and its currency the hryvnia. No breakthrough was achieved in talks between Russia-West.

There is a risk of conflict because Ukraine’s central banks are already struggling with an inflation rate that reached double digits last ye due to higher food and energy prices. Five rate increases were required in 2021.

In a statement, the central bank noted that many pro-inflationary threats have been realized and tighter monetary policy was needed to raise inflation expectations while maintaining steady disinflation toward 5%.

As inflation rose to its highest point since 2018, it raised rates five more times. It reached 10% in December.

Reuters interviewed analysts who predicted that the central banks would increase its key interest rates to 9.5%-10.0% due to worsening inflation and a weakening hryvnia because of fears about a Russian military incursion.

Inflation forecasts for 2022 were increased to 7.7%, from 5.0% by the central bank. They also warned that inflation will only fall back within its target range of 5 percent in 2023.

Since the beginning of 2022, the hryvnia is now less than 4% weaker against the dollar, despite central banks selling 752 million dollars in January to ease volatility on the domestic currency market.

The NBU stated that it did not intend to ban capital withdrawals.

“Our forecast assumes that the next growth will occur in March,” said Deputy Governor Sergiy Nicholasychuk at a briefing.