KYIV

The National Bank of Ukraine raised its key interest rate by half a point to 8 percent to curb accelerating inflation and signalled a further increase may be necessary.

The central bank raised the rate from 7.5 percent after keeping it unchanged in June. Policymakers raised the rate to 6.5 percent in March and to 7.5 percent in April, as price growth accelerated sharply.

“Given the significant increase in fundamental inflationary pressures, this (rate rise) is necessary to return inflation to 5 percent in 2022 and keep inflation expectations under control,” the central bank said in a statement.

The central bank said it was ready to raise the interest rate in future to 8.5 percent and to keep it at this level until the second quarter of 2022 to return inflation to the target of 5 percent in 2022.

Annual inflation jumped to 9.5 percent in June, 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. The regulator 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 badly needed new credits after a year-long stalemate.

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 last month – by cabinet order – of the head of the state-run oil and gas company Naftogaz.

“Prolonged delays in the implementation of the Cooperation Agreement with the IMF create risks for financing the state budget deficit, especially in the coming years,” the National Bank said.

“It may also worsen inflation and exchange rate expectations, which will force the central bank to pursue the tighter monetary policy.”