Ukraine may increase borrowing costs further as concerns over a potential war with Russia pushed the country’s currency to the weakest level in a year.
The central bank signalled last month that interest rates will continue to rise, although only a narrow majority of analysts in a Bloomberg survey expect such move at the meeting on Thursday. Five out of nine economists predicted a half-point hike to 9.5%, with the rest expecting no change.
The hryvnia is the world’s second-worst performing currency this year, falling 3.8% against the dollar. Its weakness is adding to pressures that have driven inflation to 10% or higher since July.
The central bank raised the benchmark five times last year and said in December that most of its board members agreed to continue tightening monetary policy.
“The escalation of Russia’s pressure on Ukraine last week that affected debt and foreign exchange markets have provided arguments for an increase of
borrowing costs,” said Vitaliy Vavryshchuk, head of macroeconomic research at the Kyiv-based investment firm ICU.
“Now it would be good for the central bank to give a signal to calm the situation down a bit.”
Speaking against a further rate hike is Ukraine’s anemic economic recovery, with key industries hurting from high energy costs. Vavryshchuk said the main rate would probably stay unchanged in January if it wasn’t for rising tensions with Russia.
Since November, the US has been warning European allies that the Kremlin may be preparing to invade Ukraine, already massing more than 100,000 troops near its neighbor’s border. President Vladimir Putin denies he’s planning an invasion.