NBU keeps key policy rate at 6%

The National Bank of Ukraine (NBU) announced on Dec.
10 that it decided not to change its key policy rate at its monetary policy
board meeting that day, keeping it at 6%. It has stayed unchanged since June
12. The interest rate at this level ensures stimulatory monetary policy, which
is important for economic renewal, but simultaneously helps to maintain
moderate inflation, the NBU noted in a statement published on its website.

In November, consumer inflation sped up to 3.8% yoy,
approaching the lower end of the inflation target range of 4-6%. Accelerating
inflation was due to the increased price for natural gas at the European market
and higher prices for some foods. The NBU also noted that consumer demand
remains high, which is also pushing prices upwards.

Given the low comparative base of the previous year,
the central bank expects consumer inflation to increase further in the coming
months. By the end of 2020, it expects consumer inflation will return to the
target range of 4-6%.

IMF cooperation is a fundamental condition for the
renewal of the Ukrainian economy, the central bank emphasized. Financing from
the IMF and other international partners is critical for executing planned
budget expenditures.

The major risk to macroeconomic stability is an
extended COVID pandemic and the reinforcement of quarantine restrictions, the
statement said.

Evgeniya Akhtyrko: It looks like the NBU itself didn’t give much credit to monetary
softening as a factor in the recent inflation. A lower key policy rate hasn’t
worked as a mechanism that would stimulate banks to slash their interest rates
for loans, which eventually should result in increased economic activity.
Apparently, commercial banks assess the economic risks as too high, and this
prevents them from intensifying their loan programs.