By Olena Harmash

KYIV (Reuters) – Ukraine’s central bank kept its key interest rate unchanged at 15.5% on Thursday, expecting consumer price inflation to start declining this summer.

It warned, however, that global trade disputes and wartime challenges would limit Ukraine’s economic recovery this year. In a statement, it downgraded its forecast for 2025 gross domestic product growth to 3.1% from 3.6% previously.

Governor Andriy Pyshnyi stated that the central bank planned to maintain the rate steady in the coming months and might consider easing once peak inflation has passed.

Annual inflation reached 14.6% in March, data showed. As inflation quickened at the end of 2024 and early this year, the central bank responded by increasing the rate during its three previous monetary meetings.

“Inflation will resume declining in the summer and will slow to single digits by the end of the year,” Pyshnyi told a news briefing.

The central bank expects annual inflation to stand at 8.7% at the end of 2025 before slowing to 5% in 2026 and 2027.

ICU-Ukraine, a Kyiv-based investment house, forecasts that the bank will keep the key rate steady until September, cautiously cutting it thereafter. “Under our current base case scenario, the key policy rate will be cut three times by 50 bps, reaching 14.0% by the end of 2025,” ICU noted. “The likelihood of more rate cuts is very low, despite the expected slowdown in inflation.”

UNCERTAINTY HIGH

Pyshnyi highlighted that uncertainty remains high due to over three years of all-out war with Russia, exacerbated by recent trade-related turmoil in global markets.

“An escalation of global trade confrontations has not yet impacted the Ukrainian economy, but it will hinder its recovery later on,” the central bank said, noting that global trade tariffs introduced since Donald Trump returned to the White House this year would likely lead to a decline in external demand for some of Ukraine’s exported goods.

However, Ukrainian agricultural exports are expected to remain in demand even as the global economy cools.

Ukraine’s economy has been devastated by the war; millions fled fighting, cities and infrastructure were bombed, and exports and logistics were disrupted. GDP fell by about a third in the first year of the war, and despite some modest growth in the last two years, it remains smaller than pre-war levels.

The central bank reported that growth remained “restrained” in the first quarter, partly due to significant damage to Ukrainian natural gas infrastructure from Russian bombing, which increased the need for gas imports.

Better harvests and growth in Ukraine’s domestic weapon production are expected to drive economic expansion this year, the central bank noted.