UPDATE 1-INTERVIEW-Ukraine mnister says FX rise could hurt trade

(Recasts, adds details and background)

By Sebastian Tong

LONDON, May 14 (Reuters) - An appreciation of the Ukrainian hryvnia to combat the country's double-digit inflation rate would worsen the trade deficit, Ukraine's deputy economy minister said on Wednesday, saying that inflation would be tackled via trade liberalisation and improved energy efficiency.

"Currency appreciation is one way (to fight inflation) but we have a negative trade balance which would speed up if the currency were to appreciate," Valeriy Pyatnytskiy told Reuters in London.

Ukraine's trade deficit for goods for the first two months of the year stood at $1.1 billion.

The country's hryvnia UAH= is trading at about 3 percent above its official 4.95-5.25 percent band, sparking market speculation that the central bank favoured a stronger currency to curb inflation.

Ukraine's central bank, however, has said it would not widen the trading band to the greenback.

"Frankly, it's impossible to stop inflation just by appreciating (the currency by) 1 to 2 percent," Pyatnytskiy said.

Instead, the government would combat inflation, which hit 30 percent in April, with a combination of lower food import tariffs as a result of its World Trade Organisation accession this month as well as targeted action to break up local monopolies.