Ukraine cuts rates to 13% as blackouts hinder growth

Ukraine’s central bank has implemented a third consecutive cut in borrowing costs, lowering the key interest rate by 50 basis points to 13 per cent on Thursday. This decision aligns with economists’ expectations in a Bloomberg survey.

The move comes as policymakers assess the economic ramifications of Russian attacks on Ukraine’s energy infrastructure.

The National Bank of Ukraine has been easing monetary policy since March, facilitated by a decline in inflation and the anticipated influx of foreign aid. Ukraine expects to receive $2.2 billion from the International Monetary Fund and €1.9 billion ($2.1 billion) from the European Union this month.

Despite these measures, the economic outlook has been downgraded, with growth forecasts reduced from 3.6 per cent to 3 per cent due to the ongoing damage to energy facilities caused by Russian attacks. Prime Minister Denys Shmyhal has highlighted the severity of the situation, noting a reduction in power production capacity by 9 gigawatts.

The central bank’s statement emphasised the continuing risks posed by the full-scale war to inflation and economic growth, particularly due to further damage to infrastructure and energy facilities. Inflation had increased slightly to 3.3 per cent annually in the past month, compared to an expected 8.2 per cent for 2024, which was lower than the central bank’s projections.

Of the 11 policymakers, seven forecast the benchmark rate to be 13 per cent by the end of the year, with four predicting even deeper cuts. The central bank is considering revising its year-end rate target, currently set at 13 per cent, in response to evolving economic conditions.

Attribution: Bloomberg.