Ukraine's cenbank holds key rate at 15.5%, sees slower 2025 economic growth

By Olena Harmash

KYIV (Reuters) -Ukraine's central bank kept its key interest rate unchanged at 15.5% on Thursday and said it expected consumer price inflation to start declining this summer.

It warned, however, that global trade disputes as well as wartime challenges would limit Ukraine's economic recovery this year. In a statement, it downgraded its forecast for 2025 gross domestic product growth to 3.1% from 3.6% previously.

Governor Andriy Pyshnyi said the central bank planned to keep the rate steady in coming months and might return to easing once peak inflation has passed.

Annual inflation reached 14.6% in March, data showed. As inflation was quickening at the end of 2024 and early this year, the central bank responded by increasing the rate during its three previous monetary meetings.

"Inflation will resume declining in the summer and will slow to single digits at the end of the year," Pyshnyi told a news briefing.

The central bank expects annual inflation to stand at 8.7% at the end of 2025 before slowing to 5% in 2026 and 2027.

ICU-Ukraine, a Kyiv-based investment house, said it expected the bank to keep the key rate steady until September and then to cut it cautiously.

"Under our current base case scenario, the key policy rate will be cut three times by 50 bps, reaching 14.0% at the end of

2025," said ICU's research note. "The likelihood of more rate cuts is very low, despite the expected slowdown in inflation."

UNCERTAINTY HIGH

Pyshnyi said uncertainty remained high due to more than three years of all-out war with Russia, and it was further increased by recent trade-related turmoil on global markets.

"An escalation of global trade confrontations has not yet impacted the Ukrainian economy, but it will slow its recovery later on," the central bank said.

The bank said that global trade tariffs being introduced since Donald Trump returned to the White House this year would probably lead to a decline in external demand for some of Ukraine's exported goods.

But it said that Ukrainian agricultural exports would remain in demand even as the global economy cools.

Ukraine's economy has been devastated by the war as millions of people fled fighting, cities and infrastructure were bombed, and exports and logistics were disrupted.

GDP fell by about a third in the first year of the war, and despite some modest growth in the last two years, it remains smaller than before the war.

The central bank said that growth remained "restrained" in the first quarter, in part due to heavy damage inflicted on Ukrainian natural gas infrastructure by Russian bombing, which in turn increased the need for gas imports.

Better harvests and a growth in Ukraine's domestic weapon production would drive an economic expansion this year, the central bank said.

(Reporting by Olena Harmash; editing by Tom Balmforth)