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08.02.202218:32 Forex Analysis & Reviews: Inflation is still raging in Ukraine

Inflation in Ukraine slowed only slightly in January - to 9.9%, as concerns about a military attack by Russia led not only to a depreciation of the hryvnia but also pressure on prices. The situation was not saved even by another increase in the interest rate.

Inflation is still raging in Ukraine

The annexation of Crimea in 2014 and the conflict in the east of the country turned out to be far from the last chapters in the complex history of relations between Russia and Ukraine. So, in recent weeks, Russia, according to Western analysts, has concentrated more than 100,000 troops at the Ukrainian border. Moscow denies that it is planning a further invasion.

However, investors do not risk capital investments, preferring other currencies to the hryvnia.

The median estimate of inflation in January from Ukrainian analysts from banks and brokerage companies was 9.9%, according to the survey, compared with 10% in December.

"We expect it to decrease slightly in January," said Sergey Kolodiy from Raiffeisen Bank's Ukrainian subsidiary.

"A particular risk for inflation is the devaluation of the hryvnia in the second half of January, mainly caused by geopolitical tensions," Kolodiy said.

Indeed, the hryvnia has already lost about 5% against the US dollar in January, falling to 29/$1 for the first time since February 2015. This almost nullified the efforts of the central bank to curb price growth.

Thus, as part of the fight against inflation, the National Bank of Ukraine in January raised the key interest rate by another percentage point - up to 10%. And this is another increase after the previous five in 2021 to combat inflation, which in September reached a three-year high of 11%.

Nevertheless, analysts do not expect a further weakening of the hryvnia, which strengthened somewhat in early February and returned to the level of 28/$ 1. The median forecast in the survey shows the hryvnia at the level of 27.8/$1 at the end of February.

"Russia's less aggressive rhetoric and significant NBU interventions have played in favor of the local currency," analysts say.

Of course, while tensions remain at the borders, the hryvnia is under severe pressure. However, as soon as the conflict is resolved, Ukraine's economy may enter the Renaissance.

Egor Danilov,
Analytical expert of InstaSpot
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