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Ukraine’s Economic Growth Deteriorates Thanks to Russia

Daniel Kim Views  

The Central Bank of Ukraine has reduced borrowing costs for the third consecutive time, weighing the economic impact of Russia’s attack on the country’s energy sector.

The National Bank of Ukraine lowered the benchmark interest rate to 13% on the 13th (local time), a decrease of 50 basis points. This decision aligns with the median estimate of economists in a Bloomberg survey.

Anticipating a slowdown in inflation and an influx of foreign aid, the rate-setters have paved the way to resume financial easing in March.

They expect ally countries to enhance financial support in the coming weeks, including $2.20 billion from the International Monetary Fund and $2.03 billion from the European Union.

Ukrainian officials have downgraded growth forecasts from 3.6% to 3% due to Russia’s attacks on energy facilities.

The Central Bank mentioned in its statement, “As the all-out war continues, it’s becoming a critical risk to inflation dynamics and economic development,” referring to additional damage to infrastructure, especially energy and ports.

Prime Minister Denys Shmyhal stated this month that the attacks had reduced total power production capacity by 9 gigawatts, describing the situation as very difficult.

According to the minutes of the April Central Bank meeting, 7 out of 11 policy drafters expected the benchmark interest rate to be reduced to 13% by the end of the year, while 4 expected a larger cut.

Officials considered both energy risks and the prospect of inflation accelerating in the second half of the year. Last month, the annual inflation rate slightly rose to 3.3% for the first time since the end of 2022, exceeding the 2024 forecast of 8.2%.

Policy drafters said they could revise the year-end target from the current 13%.

Daniel Kim
content@viewusglobal.com

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