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NBU hikes key policy rate to 6.5%

NBU hikes key policy rate to 6.5%

5 March 2021

The National Bank of
Ukraine (NBU) announced on Mar. 4 that it decided to hike the key policy rate
by 0.5 pp to 6.5% at its monetary policy board meeting that day. It has stayed
unchanged since June. This decision aims to return consumer inflation to the
target range under the renewal of both Ukraine’s and the world economy.

 

In January, consumer inflation sped up to
6.1% yoy
.
According to preliminary NBU estimations, consumer inflation further
intensified in February, exceeding the regulator’s forecast. At the same time,
core inflation mostly corresponded to the NBU’s expectations.

 

The NBU expects
inflation to peak in the middle of 2021. Then, it should start cooling, and it
will return to the target range in 1H22. IMF cooperation is a major assumption behind
the central bank’s
forecast. Financing from the IMF and other international partners is critical
for executing public expenditures and providing economic incentives. The major
risks to the macroeconomic forecast include the reinforcement of quarantine
restrictions both in Ukraine and globally.

 

The central bank
noted that it is ready a further hike of the key policy rate to further curtail
fundamental inflation pressure, stabilize expectations and return inflation to
the target range.

 

Evgeniya Akhtyrko: The NBU’s decision to hike the key
policy rate was in line with our expectations. However, we expect February’s
consumer inflation to land at 7.2% yoy, so the new key policy rate is likely to
lag behind.

 

The next revision of
the key policy rate is scheduled for Apr. 15. We expect the key policy rate
will be hiked by up to 100 bps.

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