NBU expects inflation to reach target in early 2020

The National Bank of Ukraine (NBU) revised upward its
2018 inflation (CPI) forecast to 10.1% YTD from 8.9% YTD due to fast
growth of global prices for wheat and energy resources, as well as
faster-than-expected wage increases in Ukraine, as stated in the central bank’s
quarterly inflationary report published on Nov. 1. This revision postpones the
achievement of the NBU’s inflation target range of 4-6% to the beginning of
2020 instead of end-2019, as had been projected in July’s report.

Consumer inflation will reach 6.3% yoy in 2019,
according to the NBU, while the mid-term target of 5% will be reached by the
end of 2020. The NBU also revised downward its forecast for 2019 gross
international reserves to USD 19.2 bln from USD 20.7 bln. In 2020 and 2021,
gross reserves will reach USD 18.6 bln and USD 19.1 bln, respectively, or
exactly three months of future imports. The central bank’s forecasters made no
changes to Ukraine’s GDP oulook, expecting 3.4% growth in 2018, 2.5% growth in
2019 and 2.9% growth in 2020.

Evgeniya Akhtyrko: This revision to inflation target range terms is understandable given
the accelerating inflation in September. Meanwhile, the central bank’s forecast apparently
doesn’t take into account the dramatic increase of the current account deficit in September. In our view, the current account deficit in 2019
is likely to go far beyond the NBU’s forecast of USD 3.5 bln. That said, we are
likely to see a significant revision of external sector indicators in January’s
report of NBU.