Ukraine central bank keeps key policy rate at 17%

The National Bank of Ukraine (NBU) made no changes to
its key policy rate of 17%, it announced in a press release following its May
24 board meeting. The rate has stayed unchanged since March 2, when the
regulator hiked it from 16%. The central bank considers current monetary
conditions “tight enough” to slow inflation to target rates of 4-6% by
mid-2019. Consumer inflation, which slowed to 13.1% yoy in April, only
slightly exceeded the latest NBU forecast. Meanwhile, the central bank expects
inflation to cool significantly in May amid cheaper food prices and the
statistical effect of the comparative base.

The National Bank also said its tight monetary policy
succeeded in curbing fundamental inflationary pressure. In particular, April’s
core inflation rate stayed unchanged at 9.4% yoy, hitting the NBU’s forecast.
The regulator expects consumer inflation to slow to 8.9% yoy by the year end.
The key assumption of this forecast is the continuing progress in country’s
structural reforms, including receiving IMF financing.

Evgeniya Akhtyrko: This NBU’s
decision implies that the central bank is still optimistic regarding Ukraine’s
prospects for receiving the next IMF loan tranche. Recall, among the remaining
key IMF requirements is the adoption of the law creating an independent
anti-corruption court, which will remain under parliamentary review until early
June.

The decision at the next NBU board meeting on July
12 will completely depend on parliament’s success in adopting the needed bill
by that time. Should it fail, we believe the NBU is likely to hike the key
policy rate.