Ukraine's central bank to keep rates at 6% after wage hike: Reuters Poll

KYIV (Reuters) - Ukraine’s central bank is likely to keep its key interest rate at the current level of 6% as it anticipates that a rise in the minimum wage will cause inflation to speed up in coming months even as the economy slows, a Reuters poll showed on Wednesday.

Policymakers will meet to review rates on Sept. 3.

Ten of 11 Ukrainian analysts polled by Reuters expect the benchmark interest rate will remain unchanged while one contributor saw a cut to 5.5%.

“Many forecasts ... point to a significant acceleration of inflation over the horizon of 6-9 months. This indicates a high probability of completion of the stage of reducing the discount rate in Ukraine,” said Oleksiy Blinov of Alfa-Bank Ukraine, who forecast no change to policy.

Last month, parliament approved a 5.9% increase to the minimum wage from Sept. 1, with further rises from January.

The central bank has gradually reduced borrowing rates from 18% in April 2019 to the historical low of 6% in June, following a decline in inflation from 9.2% in January 2019 to 2.4 % in June and July.

Analysts in the poll saw inflation rising to 2.5% in August and 4.9% in December, while Ukraine’s economy could shrink 5.5% this year.

Gross domestic product plunged 11.4% in the second quarter, the deepest fall since 2015, due to the lockdown imposed by the government in late March to halt the coronavirus pandemic.

The authorities lifted some restrictions in June, giving the economy a chance to start recovering.

Reporting by Natalia Zinets; Editing by Catherine Evans