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Market split on whether Ukraine will raise interest rate from 6% this week: Reuters poll

KYIV (Reuters) - Analysts are divided on whether Ukraine’s central bank will raise its key interest rate on March 4 or hold it steady, balancing the need to restrain inflation with supporting a virus-hit economy, a Reuters poll showed on Tuesday.

FILE PHOTO: People wearing protective face masks visit the Central Universal Department Store (TsUM), on the first day after ending a coronavirus lockdown, in Kyiv, Ukraine January 25, 2021. REUTERS/Valentyn Ogirenko

Half of the 16 Ukrainian analysts see the National Bank of Ukraine (NBU) holding the rate at a historic post-1991 independence low of 6.0%, to prevent a rise in borrowing costs and to support businesses.

“The central bank will not raise the rate despite a significant acceleration of inflation because of the relatively weak performance in industrial production,” said Hanna Cherednychenko from the First Ukrainian International Bank.

Industrial output, which started recovering in December, shrank 4.0% year-on-year in January when the government imposed a two-week nationwide lockdown against the spread of the novel coronavirus.

The economy overall contracted by more than 4% last year.

Eight analysts believe that the central bank will raise its rate: six of them expect 6.5% and two expect 6.25%.

“This action would fully comply with the current strategy of the NBU on inflation targeting,” said Oleksandr Pecherytsyn from Credit Agricole Bank.

Inflation jumped to 6.1% in January, above the central bank’s target of around 5%, and analysts see February inflation even higher at 7.2%, their median forecast showed.

Central Bank Governor Kyrylo Shevchenko told Reuters last month that the NBU was ready to raise the rate if inflationary pressures strengthened further.

Alexander Paraschiy from Concorde Capital brokerage, who forecasts the rate at 6.5%, said the central bank had to restrain growing inflationary expectations.

“The National Bank is unlikely to dare to do a significant increase, but they have to give a signal to the market that they are trying to curb inflation”.

Editing by Matthias Williams; editing by Barbara Lewis

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