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UPDATE 2-Ukraine raises main interest rate to 8% to clamp down on inflation

·2 min read

* Third rate hike this year 

  * Inflation to cross into double digits: central bank 

  * Hike shows determination to defend financial stability: analyst 

  * Central bank envisages another hike to 8.5% (Adds quote, details, bullet points) 

  By Natalia Zinets 

  KYIV, July 22 (Reuters) - Ukraine's central bank unexpectedly raised its main interest rate to 8% from 7.5% on Thursday, the third hike this year, and signalled another hike was likely to keep a lid on rising prices. 

  Under Governor Kyrylo Shevchenko, the National Bank of Ukraine (NBU) began tightening monetary policy in March after bringing interest rates to an historic low last year to support an economy reeling from the coronavirus pandemic. 

  Shevchenko has fought off questions about the central bank's independence after his predecessor Yakiv Smoliy resigned last year complaining of political interference and pressure to loosen monetary policy. 

  "The NBU's decision to hike the key policy rate shows determination to defend financial stability in Ukraine and sends quite a positive signal to financial markets and Ukraine's international partners about its persisting independence and orthodox policy," said Alexander Martynenko, head of corporate research at ICU. 

  In its statement, the central bank said it was prepared to tighten monetary policy more quickly if inflationary pressures continued to rise. 

  The NBU said it envisaged a further rate hike to 8.5% and would likely keep the rate at that level until the second quarter of next year, in order to bring inflation back down to its target of around 5%. 

  The central bank also raised its 2021 inflation forecast to 9.6% from 8.0% and said inflation would soon cross into double digits. Most analysts in a Reuters poll this week had forecast no rate change. 

  "The NBU Board has decided to raise the key policy rate to 8% per annum," its statement said. 

  "Given the significant increase in underlying inflationary pressures, this step is necessary to return inflation to 5% in 2022 and keep inflation expectations in check." 

  One of Europe's poorest countries, Ukraine's government expects an economic bounceback this year but the central bank has warned about the risks of a resurgent coronavirus and delays in securing International Monetary Fund financing. (Reporting by Natalia Zinets and Tom Arnold; Writing by Matthias Williams; Editing by Bernadette Baum and Raissa Kasolowsky)