Ukraine raises key rate to 25%

Bloomberg

Ukraine’s central bank more than doubled its benchmark interest rate in a first such move in four months, reactivating policy tools to stem inflation and shield the currency battered by the Russian
invasion.
The central bank raised borrowing costs to 25% from 10% in its meeting on Thursday, the highest level since September 2015 — and the top rate in Europe. The bank also said its intervention to support the hryvnia climbed to $3.4 billion in May compared with an average of
$2 billion a month before.
The move seeks to help tame wartime inflation that has soared to 17% on an annual basis in May, according to the central bank’s estimates. It will also prompt an increase in government bonds and deposit interest rates, something the central bank seeks to achieve to ease pressure on the hryvnia.
“This is a decisive step from the central bank — there were expectations on the market of a significant hike, but nobody saw such a rise,” Oleksiy Blinov, head of research at Alfa Bank Ukraine, said in a message.
Policy makers signaled that the 25% was the peak — and that as inflation began to abate, the bank will move toward cuts.
“We expect that our next move will be toward a decrease, but it will only happen when we feel that devaluation and inflation expectations have calmed down,” Serhiy Nikolaychuk, a deputy governor, said at the briefing.
Seeking additional funding, the central bank chief said Ukraine should move toward a new funding deal with the International Monetary Fund.