Photo by Roman Synkevych on Unsplash

It is normal to increase the interest rate with inflation. Still, the National Bank of Ukraine has decided to keep the interest rate steady, which was predicted by the Director of the Swedish bank SEB, Kristian Andersson, to Ukrainenu last week. It is a worrying sign, according to experts speaking to Bloomberg. 

The inflation rate in Ukraine has increased to 9.5 percent in annual terms, almost double last year’s inflation rate of 5 percent. It was, therefore, expected that the National Bank of Ukraine, NBU, would increase its key interest rate from the current 7.5 percent. Still, at a meeting last week, the National Bank of Ukraine decided to keep the interest rate steady. 

Experts speaking to Bloomberg found it surprising that the National Bank of Ukraine didn’t increase the key interest rate to eight percent after growing inflation, coming after growth in prices, especially for food and natural resources such as steel. 

“We made a pause in rate hikes, as this global price shock familiar to each nation on the planet now is transitional,” said Deputy Governor Dmytro Sologub at a conference. “On the other hand, Ukraine is one of the countries that has faced galloping inflation in its past, and that was the reason for us to start the cycle of rate hikes earlier than other countries.”

Governor of the National Bank of Ukraine, Kyrylo Shevchenko, said that the phasing out of instruments to keep the economy afloat during the pandemic will give the bank additional tools to fight the inflation processes without an increase in the key interest rate, according to Bloomberg. A good harvest this year is also expected to slow the advance in food costs. 

Still concern among experts

The current inflation level of 9.5 percent in Ukraine is much higher than the seven percent target set by the beginning of 2021 for the year and the target of five percent inflation in the first half of 2022. Ukrainenu previously spoke to Kristian Andersson, Director of the Swedish bank SEB, before the decision to keep the key interest rate at 7.5 percent. 

In contrast to other experts, he expected the National Bank of Ukraine to keep the key interest rate steady, even though it would be better to increase it. 

“In the short term, it might be very beneficial for some to have the central interest rate low so that they can have cheap loans, but in longer-term, it is better to have a more stable inflation rate and central interest rate for the population. When inflation goes up, you would normally increase interest rates to cool it down,” Andersson told Ukrainenu. 

Kristian Andersson, CEO of SEB Ukraine. Photo: SEB

The move to keep the key interest rate steady also concerns Citibank AO Chief Economist Ivan Tchakarov, who called “this decision as inconsistent with market guidance.”

Inflation on the rise in Ukraine but no reason to panic yet

Maybe the President is affecting things

Andersson said that the National Bank of Ukraine might be affected by the Ukrainian President. It could be the reason for keeping the key interest rate steady. Andersson refers to events taking place last year, which makes many follow the recent events closely. The previous governor of NBU, Yakiv Smoliy, left his job last year after what he called “systematical political pressure,” which, he said, made it difficult for him to fore fill his position. It made several international organizations worried about NBU’s independence.

Kyrylo Shevchenko replaced Smoliy as governor and guaranteed independence. Still, it has not silenced all critics, mainly after President Zelensky openly discussed the ideal exchange rate and how he would like to see a continuing low central interest rate in Ukraine.

“We don’t know much more now about the independence of NBU. My feeling is that NBU showed a bit of independence when they raised the central interest rate earlier this year from 6 to 6.5 percent, which was good. What I am afraid of now is that they will keep the central interest rate low with inflation too high,” said Andersson, but pointed out that he expects the National Bank of Ukraine to increase the key interest rate either on a meeting on July 22 or at the meeting later in September to combat the higher inflation. 

The National Bank of Ukraine’s central interest rate over the years:


Ukraine’s inflation level over the years:

Statistic: Ukraine: Inflation rate from 1996 to 2026 (change compared to previous year) | Statista
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