KYIV, Oct 21 – Ukraine's central bank kept key interest rates unchanged at 8.5% on Thursday despite growing inflation amid concerns over slowing economic growth, National Bank of Ukraine Governor Kyrylo Shevchenko said.

The NBU has been steadily raising interest rates this year in reaction to growing inflation but has been recently facing criticism from the government that higher interest rates slow down economic growth.

The developments come two days after Bloomberg reported that President Volodymyr Zelenskiy wanted to replace Shevchenko. The report cited three people familiar with the plans.

Shevchenko, at a press conference on Thursday, rejected speculations that political pressure had forced the NBU to keep the rates steady.

"When deciding on a rate, we take into account only economic factors, Shevchenko said. “The political motivation to increase or not increase does not fit into the context of today.”

A tighter monetary policy helps rein in inflation expectations and bring back a steady disinflation trend. On the other hand, keeping the rates steady or lowering them may accelerate inflation.

Ukraine’s annual inflation rose to 11% in September, with compares with the NBU’s target of 5%, but Shevchenko said the NBU expected inflation to slow down to 9.6% by the end of the year.

Shevchenko said that keeping the rates steady would be “in line with the reduction of inflation to the target of 5% at the end of next year in accordance with the baseline scenario of the updated macroeconomic forecast.”

The NBU, in a statement, said that "Inflation continued to be fueled by a number of external and domestic factors. Prices on world commodity markets remained high. As expected, the constant fundamental pressure remained. Higher production costs of business for wages, raw materials and energy affected the dynamics of consumer prices.”

Zelenskiy wasn’t happy with Shevchenko’s performance, Bloomberg reported on Tuesday citing the people who asked not to be named as the matter isn’t public. The governor has fallen out with some of the bank’s senior executives, triggering a wave of resignations that unnerved Western donors including the International Monetary Fund.

Shevchenko’s predecessor, Yakiv Smoliy, resigned in July 2020 citing political interference and pressure to loosen monetary policy.

The IMF, in a statement earlier this week, said that Ukraine must safeguard central bank independence and “focus monetary policy on returning inflation to its target.”

Ukraine’s economy will probably grow 3.1% on the year in 2021, down from 3.8% earlier expected, the NBU said Thursday. The NBU blamed the resurgence of the coronavirus pandemic for slowing economic growth this year. (tl/ez)