Ukraine keeps main interest rate unchanged as COVID-19 cases spike

KYIV (Reuters) - Ukraine’s central bank kept its main interest rate unchanged at 6% on Thursday for the second meeting in a row, balancing its aim of supporting an economy hit by the COVID-19 pandemic with the prospect that a higher minimum wage will fuel inflation.

The decision by the National Bank of Ukraine keeps the interest rate at its lowest level since the country became independent in 1991 and is in line with forecasts in a Reuters poll of analysts.

“Maintaining a loose monetary policy will support economic recovery amid moderate inflation and elevated uncertainty over how the pandemic is going to spread in Ukraine and the world,” the central bank said in a statement.

New Governor Kyrylo Shevchenko took charge in July promising to help revive the economy, which could contract 5.5% this year after lockdowns to contain the novel coronavirus slammed the brakes on business activity.

The rate of infections in Ukraine had been much lower compared to western Europe but has spiked to a series of record highs in recent weeks, including a new record daily death toll of 54 on Thursday.

The central bank expects inflation to speed up to its target range of around 5% by the end of the year, fuelled in part by a 5.9% increase to the minimum wage from Sept. 1, with further rises from January, approved by parliament last month.

The departure of Shevchenko’s predecessor Yakiv Smoliy rattled investors and put Ukraine’s commitment to reforms under scrutiny after Smoliy complained of political meddling in central bank decisions, a charge that the government denied.

The International Monetary Fund has agreed to support Ukraine through the coronavirus pandemic with a $5 billion loan agreement that is contingent on Kyiv keeping reforms on track.

That includes safeguarding the independence of the central bank and the national anti-corruption bureau (NABU), and making sure the 2016 nationalisation of Ukraine’s largest lender, PrivatBank, is not reversed.

Shevchenko told reporters he expected an IMF mission in Ukraine soon and more loan money by the end of the year.

But in its statement, the central bank warned of the “negative impact of certain court rulings on macrofinancial stability”.

A court ruled on Wednesday that PrivatBank must pay back $350 million deposited in the accounts of six non-resident companies before its nationalisation.

Last week the constitutional court ruled that the 2015 appointment of the NABU chief was unconstitutional, a decision NABU called “politically motivated”.

Writing by Matthias Williams; Editing by Toby Chopra and Catherine Evans