By Olena Harmash
KYIV (Reuters) – Ukraine’s central bank said on Thursday it would keep its main interest rate unchanged at 25% as inflation pressure remained high due to continued Russian missile strikes on critical energy infrastructure.
The central bank said it expected very sluggish economic growth and a bigger trade deficit this year as the economy adapts to a war-time reality of regular power outages and disrupted supply chains and logistics.
“We have cut our forecast for economic growth due to two factors – the intensification of Russian missile attacks and deeper damage to the infrastructure,” Govenor Andriy Pyshniy told an online news conference.
The conference was conducted from an undisclosed shelter for safety reasons not long after Russia fired more than a dozen missiles at the capital Kyiv, killing one person and wounding two.
Pyshniy said the resilience and adaptability of Ukrainian businesses, government policy measures and support from international partners was helping keep the situation under control.
The central bank expects gross domestic product to edge up by 0.3% this year after a fall of 30.3% last year. It predicts the economy will return to more robust growth of 4.1% in 2024.
PRICE PRESSURES
The central bank said it expected inflation to start slowing later in the year, reaching a full-year level of 18.7% for 2023. Inflation stood at 26.6% in 2022, it said.
“Inflation has stabilised during recent months but it remains at a high level,” the central bank said in a statement.
Pyshniy reiterated the bank’s plans to keep its main rate steady at 25% at least until the end of the first quarter of 2024. The central bank said it would increase its obligatory reserve requirements for commercial banks by 5 percentage points to 10% in the hryvnia currency and to 20% in foreign currency from February 11. Another increase is planned for March.
The central bank expects a considerable current account deficit this year and said the trade deficit would widen because of a smaller expected grain harvest and the power deficit.
Officials see foreign financial aid helping to offset that.
Pyshniy said he expected Ukraine to receive over $38 billion from its partners this year after $32 billion in 2022.
The central bank’s foreign currency reserves are expected to grow to about $30 billion at the end of January from $28.5 billion at the end of December 2022. But they are expected to fall to about $27 billion at the end of 2023.
The central bank fixed the hryvnia currency rate at 36.57 to the dollar last summer and has to intervene regularly on the forex market to prop up the hryvnia. Its data showed the bank sold about $3 billion on forex market in December.
(Reporting by Olena Harmash; editing by Tom Balmforth and Christina Fincher)
