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Ukraine raised interest rates more than double, to 25%

Ukraine increased interest rates more than doubled, to 25% - Photo 1.

Iryna Murach with her daughters Alisa and Sofiya walking in a neighborhood in Kiev, UkraineJune 1 – Photo: REUTERS

In the first interest rate intervention since the Russian military offensive on February 24, Ukraine’s Central Bank Governor Kyrylo Shevchenko raised the benchmark interest rate from 10% to 25%.

Borrowing costs rose to their highest level since September 2015 and are now the highest in Europe.

According to the newspaper GuardianRussia’s “special military operation” devastated Ukraine’s economy. The World Bank (WB) forecasts that the country’s economy may shrink by at least a third this year.

The fighting has forced businesses to close, damaged infrastructure and disrupted supply chains.

Central Bank Governor Shevchenko has called for talks with the Fund (IMF) on a new aid program. An adviser to President Volodymyr Zelensky’s office criticized the increase in aid as too high and jeopardizing the economy in times of war.

The bank believes that a substantial rate hike will force the government to increase yields on domestic bonds, make hryvnia-denominated assets more attractive, and prevent inflation from eroding incomes and consumer savings.

According to central bank estimates, inflation was in double digits before the crisis began and had increased to about 17% in May from 16.4% in April.

Inflation could more than double by 2022, from 10% in 2021, due to rising global costs and the war’s impact on domestic production networks and supply chains.

According to a survey conducted by the European Business Association in Ukraine, the number of small businesses shutting down in April fell to 26% from 73% in March.

Inflation rises sharply in Turkey

Inflation in Turkey surged to a 23-year high in April, before President Recep Tayyip Erdogan’s strategy backfired, causing inflation to rise further in May.

In May, the consumer price index increased by 73.5% year-on-year, the highest level since October 1998. Food prices have increased by 91.6% over the same period.

In April, the consumer price index increased by 69.97% year-on-year, higher than 61.14% in March. Transportation costs increased the most at 105.9%, while prices of food and non-alcoholic beverages increased by 89.1%.

The lira’s devaluation has pushed up the cost of energy imports, turning foreign investors away from this once-promising emerging market.

Last year, the lira fell 44% against the dollar, while since the beginning of this year, the local currency has lost more than 11% of its value.

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