Ukraine's Economic Struggle Amidst War and Inflation

Ukraine's central bank raised the main interest rate to 14.5% to curb inflation, challenging economic recovery amid war with Russia. Inflation hit 12% in December, driven by rising costs and power shortages. The central bank projects growth slowdown due to ongoing hostilities and economic constraints.

Ukraine's central bank has raised its main interest rate by a percentage point to 14.5%, marking the second hike in two months, in a bid to tackle soaring inflation. Consumer price inflation surged to 12% year-on-year in December, surpassing forecasts, as the country grapples with war-induced power shortages and escalating business costs.

The central bank aims to stabilize the forex market and control inflationary expectations, ultimately targeting a gradual decline in inflation to 5%. While this uptick was anticipated, the bank signals potential further hikes if necessary. The forecast anticipates inflation peaking in Q2, easing to 8.4% by year-end, and reaching 5% by 2026.

Governor Andryi Pyshnyi highlights the severe impact of the Russian conflict on Ukraine's economic growth, with GDP expanding modestly at 3.4% in 2024, down from 5.3% in 2023. Power supply challenges, reduced harvests, and labor shortages contribute to a subdued outlook, yet a rebound to 4% growth is expected by 2026 due to investments and fiscal policy adjustments.