Ukraine’s central bank says interest rate decisions depend on war

Headquarters of Ukrainian central bank is seen in central Kiev

KYIV (Reuters) – Ukraine’s central bank said the situation in the war with Russia will determine whether its key interest rate can be cut from the current level of 25% or whether further hikes will be necessary.

On June 2, the central bank sharply raised its main interest rate to 25% from 10%, tightening monetary policy for the first time since the Feb. 24 Russian invasion to tackle double-digit inflation and protect incomes and savings during the war.

“With a prolonged military confrontation, inflationary risks will increase significantly,” it said in minutes of the central bank’s Monetary Policy Committee (MPC) meeting which was held before the June 2 decision.

According to the minutes published on Monday, some committee members believed the National Bank of Ukraine (NBU) would need to tighten monetary policy.

“Uncertainty remained high and … the NBU should therefore be ready to use all available tools to ensure price and financial stability, in particular by further increasing the key policy rate (as needed),” it said.

Other members of the committee said the central bank should be ready to cut the rate if significant capital inflows of international assistance and investments “strengthen the real exchange rate and blunt the competitive edge of domestic producers.”

(Reporting by Natalia Zinets, Editing by Timothy Heritage)