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Ukraine raises its interest rate to 25%, the highest in Europe

IFM_Ukraine’s Interest rates-image
Ukraine's economy could contract by up to 45% in 2022.

The Ukrainian central bank has doubled its interest rate by 25%, the highest level for any European country.

Following Russia’s invasion in February, the central bank raised interest rates to control surging inflation and prevent the hryvnia from collapsing further.

Since the war began, many businesses were forcibly closed, and there was widespread crucial supply network disruption.

According to the World Bank, Ukraine’s economy could contract by up to 45% in 2022.

As per the country’s central bank, inflation has climbed to 17% and might reach 20% in 2022.

The National Bank of Ukraine stated that raising the benchmark interest rate from 10% to 25% will assist citizens’ savings to be protected from rising inflation.

Since Russia’s invasion, Ukraine’s currency, the hryvnia, has been under severe strain, with its value plummeting. The central bank expressed the hope that the rate hike may relieve some of the pressure and help to stabilize the currency.

It’s Ukraine’s first rate hike since the conflict began, and the central bank hinted at a rate reduction once inflation was under control.

According to the Kyiv School of Economics, artillery fire and airstrikes have cost more than $100 billion in infrastructure damage in Ukrainian cities, while 14 million people have evacuated their homes.

As per Kyiv-based investment bank Dragon Capital, the government has rapidly expanded spending to strengthen its military defence and support residents who have lost their livelihoods, pushing the budget deficit up 27% month on month to $7.7 billion in May.

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