Ukraine is more than doubling interest rates to 25% on Thursday in a move to try to curb double-digit inflation and protect its currency, which has collapsed since the Russian invasion.
In the first interest rate intervention since Vladimir Putin’s troops attacked on February 24, the governor of the central bank of Ukraine, Kyrylo Shevchenko, raised the reference interest rate from 10% to 25% .
It has brought its borrowing costs to an all-time high since September 2015, when the Ukrainian economy was rocked by the annexation of Crimea by Russia, and the highest in Europe.
The Russian invasion has devastated Ukraine’s economy, which the World Bank has predicted could be reduced by at least a third this year. The war has forced companies to close, destroyed infrastructure, blocked sea routes and reduced entire villages to rubble.
Shevchenko called for talks with the International Monetary Fund on a new aid program. The increase was criticized by an adviser to President Volodymyr Zelenskiy’s office, who said the rate was too high and dangerous for the wartime economy. It was unclear if he was speaking in person.
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The National Bank of Ukraine had frozen its main rate by 10% at the start of the invasion, but last week indicated that it could resume regular monetary policy revisions as business activity partially recovered. the safest areas in the country.
It is hoped that a sharp rise in interest rates will also push the government to increase the yield on domestic bonds, making assets in its currency, the hryvnia, more attractive and preventing household income and savings from being seen. eroded by inflation.
Inflation was already double-digit before the conflict began and rose further to 17% in May from 16.4% in April, according to central bank estimates.
He said inflation could double in 2022 from 10% in 2021, driven by rising world prices and war damage to domestic production and supply chains.
The number of small businesses that had suspended operations in April fell to 26% from 73% in March, according to a survey by the European Business Association, the union of companies operating in Ukraine.