Ukraine central bank warns blockade could nearly halve 2017 growth

March 2, 2017 10:11 AM

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A blockade on goods from rebel-held territory could nearly halve Ukraine's expected economic growth this year, the head of the central bank said on Thursday, as the bank kept its key rate on hold

For the past month, opposition lawmakers and military veterans have blocked rail traffic from territory held by Russia-backed separatists. This has prevented coal supplies from reaching Ukrainian power plants and the steel industry, whose exports are a keystone of the economy.

"According to the most pessimistic scenario the continuation of the blockade to the end of the year could slow economic growth by 1.3 %age points to 1.5 % this year," central bank chief Valeriia Gontareva said in a briefing.

The bank is still projecting growth of 2.8 % this year, however.

Earlier the bank said it would keep its main interest rate on hold at 14 %, warning of inflation risks stemming from a recent escalation in the separatist conflict and the rail blockade.

"The long-term continuation of such events will lead to the complete severance of the (industrial) production chain," Gontareva said.

In 2016 the main rate was lowered to 14 % from 22 %. Inflation eased to around 12 % as of last December from over 43 % at end-2015.

Gontareva said further easing was currently out of the question.

"The risks of further inflationary growth have risen, which is an additional argument for the central bank to hold off now from softening monetary policy," she said.

Inflation stood at 12.6 % year-on-year in January, little changed versus December, but has likely risen in February, according to the central bank.

The regulator expects inflation in the double digits in the first three-quarters of 2017, but a fall below 10 % in the fourth quarter.

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