NBU hikes key policy rate to 9.0%

The National Bank of Ukraine (NBU) announced on Dec. 9
that it had decided to hike its key policy rate by 0.5pp to 9.0% at its board
meeting. This decision aims to remove the influence of additional inflationary
risks and ensure the sustainable decline of inflation to 5%.

In October, consumer inflation slowed to 10.9% yoy.
According to the NBU, inflation continued to slow down in November. The
regulator attributes this trend to the fading effect of the low comparative
base of the previous year, the administrative decision to lower tariffs for
housing services as well as the influence of previous decisions on tightening
monetary policy.

Meanwhile, the current trend of consumer inflation
remains higher than it was expected in the NBU’s macroeconomic forecast in
October. In particular, the regulator mentions the “secondary” effect of the
recent inflation wave resulting in inflationary pressure on a broader range of
consumer goods. In addition, the inflation fuels cost increases for logistics
and labor. On top of that, consumer demand stays high.

The NBU expects consumer inflation to slow down
through the end of 2021, as well as during 2022 as prices for natural gas are
expected to stabilize in spring, when the heating season ends. Fundamental
pressure will ease as a result of lower growth of wages and tighter monetary
policy.

The central bank noted that the progress in cooperation with the IMFlowered
the uncertainty. Meanwhile, the risks are related to the escalation of the
military conflict with Russia as well as the longer than expected surge of
global prices.

Evgeniya Akhtyrko: The hike of
key policy rate didn’t come as a surprise. The decline of consumer inflation in
October was minor, and it was also the result of the administrative decrease of
electricity tariffs for the population. In addition, a recent increase of interest rates
at the primary local bond market means that the market is already calling for a
higher cost of money. On top of that, the risk related to the military
escalation, which emerged after the previous NBU decision on the key policy
rate, is serious enough to admit the augmented uncertainty.