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Ukraine makes 2nd consecutive rate hike to 14.5%

The National Bank of Ukraine implemented a second consecutive increase to its key policy rate by taking it 100 basis points higher to 14.5%, effective Dec. 15, citing heightened inflation risk.

The central bank said that headline inflation rates continued to fall over the past two months, but at a slower pace than projected. The annual rate stood at 13.6% in November, deviating from the target, as rates of core inflation outpaced expectations due to higher production costs and buoyant consumer demand. The higher-than-expected growth rates of prices for raw foods and fuels also contributed to the deviation.

Core inflation accelerated to 8.6%, reflecting the strengthening of underlying pressure on consumer prices.

Inflation is expected to miss the target significantly by the end of the year, the NBU said, as certain risks look more likely to materialize.

The risks included higher social standards expected on the back of notably high state budget spending in 2018, higher chance of postponing the disbursement of the next IMF tranche under the Extended Fund Facility, an expected increase in highly processed food prices driven by growing raw food prices, and overall global economic expansion fueling labor migration and wage growth in Ukraine.