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Ukraine central bank hikes rate, warns of further tightening

The National Bank of Ukraine raised its key interest rate by 0.5 percentage point to 18% and said it could tighten its policy further.

"If risks of inflation materialize, the NBU could raise the key policy rate again to a level required to bring inflation back to its target within a reasonable time frame," the central bank said in a statement.

Consumer price inflation decelerated to a year-over-year rate of 8.9% in July from 9.9% in June. The central bank set a medium-term inflation target of 5% in 2020.

It projects inflation to come in at 8.9% in 2018 and return to the target range in late 2019. Policymakers noted that bringing inflation down to the bank's target is contingent on the outcome of the government's talks with the International Monetary Fund.

Efforts to slow inflation also will be constrained by the expected increase in administered prices in the fourth quarter and by risks from the capital outflow from emerging economies, the bank said.

Policymakers also flagged domestic risks arising from the volatility of the hryvnia and 2019's presidential and parliamentary elections.