Ukraine's central bank said Wednesday it will raise its key lending rate by a hefty three percentage points to its highest level in a decade, to rein in soaring inflation. The surprise decision to raise the main lending rate to 12.5 percent from 9.5 percent effective Thursday comes just weeks after the economy skirted imminent bankruptcy thanks to the promise of immediate international aid.
But an escalating pro-Kremlin insurgency in Ukraine's economically vital eastern regions, and Russia's decision last month to cut gas shipments to Ukraine seem to have scared Western investors and put pressure on the ex-Soviet country's currency. The National Bank of Ukraine (NBU) has forecast that consumer prices could grow by 17 percent on an annualised basis this year.
It noted that the annualised rate had jumped to 12.0 percent in June from 0.5 percent in January - a month before the ouster of a leader backed by Moscow in Kiev prompted Russia's seizure of Crimea and encouraged the separatist uprising. The central bank noted that the jump in prices "was anticipated, considering the weakening of the hryvnia (local currency) exchange rate, the start of economic reforms... and the continuing tensions in the east."