KYIV

The National Bank of Ukraine raised its key interest rate by half a point to 8.5 percent to curb accelerating inflation and signalled a further increase may be necessary.

The central bank raised the rate in June and July — and had previously raised it in March and April as price growth accelerated sharply.

“The National Bank will stop using anti-crisis monetary measures from the beginning of the fourth quarter,” it said in a statement.

The bank sees a return to the inflation target of 5 percent in 2022.

Annual inflation jumped to 10.2 percent in August, unchanged from July level, but up from 5 percent in December last year, pushed up by rising domestic food prices, a widening budget deficit and increasing global food and energy costs.

In April, the central bank revised its inflation forecast up to 8 percent from 7 percent in 2021, taking into account the rapid recovery of the world economy and increasing inflationary pressures. It also predicted that the peak of the inflation surge would take place in the third quarter of this year, forecasting that tighter monetary policy would gradually check inflationary pressures.

The National Bank said that it expected progress in negotiations with the International Monetary Fund (IMF) over the resumption of disbursements of a standby arrangement after a year-long stalemate as it considered cooperation with the IMF as one of the factors in its monetary policy.

“The implementation of the IMF programme will allow for us to obtain official financing from other sources, as well as contributing to lower rates on external borrowing and supporting the interest of foreign investors in hryvnia assets,” the bank said.

The IMF and Ukraine clinched an agreement on a $5 billion standby credit a year ago and a total of $2.1 billion was quickly disbursed. But subsequent tranches were put on hold after a review found that the government had failed to implement judicial reforms, rein in widespread corruption and guarantee the central bank’s independence.

Concerns were also raised about the failure to observe normal corporate governance in state-run companies, with U.S. Secretary of State Antony Blinken citing, in particular, the dismissal in June – by cabinet order – of the head of the state-run oil and gas company Naftogaz.

The National Bank said that a significant increase in pandemic-related restrictive measures in Ukraine and throughout the world, as well as a longer and more significant than expected inflation surge in various countries  were considered key risks to Ukraine’s economic recovery.

“The spread of new variants of coronavirus may lead to further tightening of quarantine restrictions and weakening economic activity,” the bank said.

“The direction of inflation will be determined by the ratio of pro-inflationary … and disinflationary … factors. markets and trading partner countries will put pressure on domestic prices and threaten a longer deviation of inflation from the 5 percent target,” the bank said.