September 5, 2018 / 11:04 AM / in 2 months

Ukraine to raise rates on Thursday as hryvnia weakens - Poll

KIEV (Reuters) - Ukraine’s central bank will raise its key interest rate on Thursday as the weakening hryvnia currency could stoke inflation and the prospect of more foreign aid remains uncertain, a monthly poll of analysts showed on Wednesday.

Seven of sixteen analysts surveyed expect the rate to rise to 18.0 percent and another five participants forecast an increase to 18.5 percent from the current 17.5 percent. Only three analysts believe the rate will remain unchanged and one sees a decrease to 17.0 percent.

The National Bank of Ukraine (NBU) raised its key policy rate by 0.5 percentage points to 17.5 percent in July as it struggled to keep consumer inflation below the 9 percent mark this year as agreed with the International Monetary Fund.

The central bank said a delay in implementing reforms has put the prospect of receiving more IMF loans at risk, threatening Ukraine’s macroeconomic stability.

Kiev has not received aid from a $17.5 billion (13.7 billion pounds) IMF package since April 2017.

That has limited Ukraine’s opportunities to borrow on capital markets, put more pressure on the budget as well as the hryvnia currency, and resulted in foreign currency reserves falling to three months’ worth of imports.

An IMF mission will visit Kiev from Thursday. Ukraine is hoping to secure a further tranche of aid but has not yet fulfilled a key IMF condition to raise gas prices.

The hryvnia has lost 8 percent of its value against the dollar since the central bank raised rates in July, and the NBU has signalled its readiness for further increases if they are deemed necessary to contain inflationary risks.

In July, annual inflation eased to 8.9 percent from 9.9 percent in June and 13.7 percent at the end of 2017.

The analysts see inflation quickening slightly – to 9.0 percent in August and possibly 10 percent by the end 2018.  

Editing by Matthias Williams and Kirsten Donovan

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