KIEV (Reuters) - 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 percentage points to 1.5 percent this year," central bank chief Valeriia Gontareva said in a briefing.
The bank is still projecting growth of 2.8 percent this year, however.
Earlier the bank said it would keep its main interest rate on hold at 14 percent, 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 percent from 22 percent. Inflation eased to around 12 percent as of last December from over 43 percent 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 percent 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 percent in the fourth quarter.
Reporting by Natalia Zinets; Writing by Alessandra Prentice; Editing by Jeremy Gaunt