Central bank keeps key policy rate unchanged at 17%

The National Bank of Ukraine (NBU) made no changes to
its key policy rate of 17% after four consecutive hikes in the six previous
months, it announced in a press release following its Apr. 12 board meeting.
The central bank considers current monetary conditions “tight enough” to slow
inflation to target rates of 4-6% by mid-2019. Consumer inflation slowed to 13.2% yoy in March, still
exceeding NBU projections, and core inflation was 9.4% yoy growth.

The central bank believes that its tight monetary
policy curbed inflation through the “exchange rate channel,” meaning that the
hiked key policy rate made UAH-denominated securities more attractive for
non-residents. The FCY receipts from the purchase of Ukrainian securities by
non-residents, coupled with higher currency sale by exporters, contributed to
ongoing appreciation of the national currency.

Evgniya Akhtyrko: The NBU’s
decision to keep the key policy rate unchanged was widely expected by the
market. The central bank sent a clear signal that only very negative
developments in Ukraine-IMF talks regarding the next loan tranche will prompt
it to resort to another key policy rate hike in April. Although we still have
no positive hints for IMF financing, the chance for a good outcome is not lost.

Recently, Ukrainian power brokers have asserted
that legislation on creating the required anti-corruption court should be approved in the next two months. We expect they will prepare a draft that just
barely satisfies the standards set by the Council of Europe in order to secure
the IMF tranche.