POLL-Market split on Ukrainian rates despite high inflation

* Reuters interest rate survey data: // realtime / verb = Open / url = cpurl: //apps.cp./Apps/cb-polls? RIC = UACBIR% 3DECI

KYIV, June 15 (Reuters) – Analysts are divided over whether Ukraine’s central bank will raise its key interest rate this week or keep it at 7.5%, as it balances the need to contain the inflation and help the economy come out of recession, according to a Reuters poll. Tuesday.

The government had forecast a 4% growth spurt in 2021 after a sharp 4% contraction last year amid coronavirus lockdowns, but the economy shrank 2% in the first quarter.

Seven of 15 analysts polled by Reuters believe high inflation will prompt the National Bank of Ukraine (NBU) to hike the rate to 8% or 8.5% on Thursday. Inflation jumped to 9.5% in May, from 8.4% in April and 5% in December.

Inflationary risks are the dominant factor, said Oleksiy Blinov of Alfa-Bank Ukraine, who forecasts an increase of one percentage point.

The other eight contributors believe the rate will remain unchanged, saying the factors driving inflation are temporary and will subside in the second half of the year.

What’s more, the central bank has already hiked rates twice this year, sparking overseas investments that have bolstered the hryvnia, making exports less competitive and lending more expensive, analysts said.

“The expected good harvest of grains, oilseeds and sugar beets should have a strong disinflationary effect in 2H21,” said Sergiy Nikolaychuk, broker ICU.

Nikolaychuk expects the central bank to keep its rate at 7.5%.

The central bank has already bought $ 415 million of excess supply on the local interbank foreign exchange market in June to control the hryvnia. The currency strengthened on Tuesday to below 27 per dollar for the first time since last July.

Foreign investors have increased their investment in Ukrainian government bonds by almost $ 377 million this month and $ 858 million since the start of 2021.

Interest rate increases “have already contributed to the inflow of portfolio investment into the country and the strengthening of exchange rates,” Nikolaychuk said.

It is unlikely that an additional stimulus through this channel is currently needed, he added. (Edited by Matthias Williams and David Goodman)