Central bank keeps unchanged 2019-2020 inflation forecast

The National Bank of Ukraine (NBU) kept unchanged its
consumer inflation forecast of 6.3% ytd for 2019 and 5% ytd for 2020, according
to its quarterly inflationary report published on Feb. 7. Consumer inflation
will drop to 6% – the upper end of the target inflation range – in the
beginning of 2020, the NBU said.

Rising utility prices and wages will be the major
inflationary factors, as they will increase production costs and foster consumer
demand. However, the influence of these factors will be diminishing, the
central bank believes.

At the same time, the NBU’s tight monetary policy,
coupled with the government’s prudential fiscal policy, will counteract
consumer inflation. Lower exchange rate volatility, and moderate price growth
for imported goods, will also curb inflation.

The NBU also kept unchanged its forecast of real GDP
growth. In 2019, Ukraine’s economy will slow to 2.5% yoy growth. In 2020, it
will accelerate to 2.9% yoy growth and 3.7% yoy in 2021 as a result of
transition to softer monetary policy and the revival of investment activity
amid lowered political uncertainty.

The central bank also improved its forecast of gross
international reserves, expecting them to be around USD 21 bln in
2019-2020.

Evgeniya Akhtyrko: A bit better-than-expected 2018 consumer inflation result empowered the NBU with more confidence in its
vision on inflation trends. Meanwhile, the major assumption of the NBU’s
forecast is continuing Ukraine-IMF cooperation, including IMF financial
assistance of USD 2.5 bln in 2019. If this assumption doesn’t hold, this
forecast will be subject to drastic revision.