Ukraine's central bank keeps benchmark rate on hold citing high May inflation

KYIV (Reuters) -Ukraine's central bank on Thursday kept its benchmark interest rate unchanged at 15.5% for the second consecutive meeting, citing above-forecast inflation in May in its statement.

Consumer prices climbed 15.1% in April year-on-year, and May inflation data is due to be released next week.

The central bank expects price growth to start slowing in the summer months as the next harvest begins and an improved outlook in the energy sector this year compared with last year also helps reduce price growth.

Central Bank Governor Andriy Pyshnyi said Thursday's decision would help keep the foreign exchange market stable and inflation expectations in check, in turn helping bring consumer price growth back towards the bank's 5% target.

"Inflation is likely to have reached its local maximum in May," Pyshnyi told a news briefing. "In the summer, price growth will start to slow for a wide range of goods and services, and will gradually move toward the target of 5%."

The decision was as expected - Kyiv-based investment house ICU said in a market poll ahead of the decision that more than 80% of those surveyed expected no change in rates.

Pyshnyi also suggested that if inflation pressures persist, the central bank is ready to keep its main policy rate on hold for longer than indicated in its latest macroeconomic forecast, which pointed to no change until September at the earliest.

Pyshnyi said that the war against Russia, now in its fourth year, remained one of the key risks for Ukraine's economy.

He also said that this year, lower harvests due to cold spring weather pose another significant risk for inflation and economic development.

Agriculture is a crucial sector for the Ukrainian economy. Agriculture Minister Vitaliy Koval told Reuters this week that the country's grain harvest may fall by 10% to around 51 million metric tons compared with 56.7 million tons in 2024.

Ukraine is a global producer of grains and oilseeds, but the harvest is highly dependent on favourable weather conditions during both the autumn sowing and spring months.

(Reporting by Olena Harmash; editing by Philippa Fletcher and Hugh Lawson)