Ukraine central bank keeps policy rate unchanged at 12.5%

The board of directors of Ukraine’s central bank (NBU) decided on July 6 to keep the current policy rate unchanged at 12.5% owing to acelerating inflation, according to its press release. CPI sped up to 15.0% yoy in June from 13.5% yoy in May, the NBU estimated. (The official inflation report will be released today.) Unseasonably cold weather and subsequent food price growth drove inflation above expectations. Despite the stronger CPI increase, the NBU said it’s keeping its inflation forecast unchanged at 9.1% YTD in 2017. 

The NBU said it sees the potential for a further policy rate cut if inflationary risks ease. Among the risks the NBU said it’s monitoring are: (a) the impact of a potential pension payment increase scheduled for October, (b) another possible hike in energy rates, (c) delayed reforms, and (d) escalation of the warfare in the east. 

The next NBU board meeting is scheduled for August 3.

Alexander Paraschiy: Fall inflation indeed will depend on whether parliament approves pension reform. Yesterday Prime Minsiter Volodymyr Groysman called for approval of the legislative package by the last session before summer recess on July 14.

In the economy, we anticipate the return of depreciation tendencies closer to the autumn months. So far, we expect the NBU to keep the policy rate unchanged at the next meeting, while further decisions will depend on the risks the NBU outlined in its press release.