Ukrainian economy under pressure due to inflation, lagging reforms, and threat of border conflict

Inflation in Ukraine climbed to 8,5 % year-on-year in March compared to 6,1 % in January 2021. The growing inflation is mainly due to rise in global food and energy prices. Ukraine is expected to recover fast from last year´s Covid-19 hit to the economy, but rising prices may pose a risk to its recovery prospects.

The Ukrainian central bank is expected to hike interest rates to 7 % from the current 6,5 % in its meeting this week.

The Ukrainian economy is also under pressure due to lagging reforms in the economy, which are holding up further loans from the IMF under the parties´ current 5 billion USD loan program. Furthermore, growing border tensions in the Donbass area are currently suppressing investors´ appetites for Ukrainian bonds and other investments.

Oleksandr Pecherytsyn, Chief Economist of Credit Agricole in Ukraine comments: “A sharp (rate) increase could negatively affect the economic environment which is already under the negative impact of quarantine restrictions. Especially since the program with the IMF is still under discussion”.