NBU expects to keep key policy rate at 8.5% through year-end

The National Bank of Ukraine (NBU) disclosed more
details of its Sept. 9 decision to hike
the key policy rate by 0.5pp to 8.5% in the minutes of its monetary policy
committee meeting published on Sept. 20. They revealed the decision was taken
unanimously by all ten committee members. The majority of members expect to
keep the key policy rate at 8.5% through the end of 2021.

The committee members noted that the development of
inflation is generally in line with the base scenario of the latest NBU
macroeconomic forecast published in July. The double-digit inflation is caused by
both temporary and fundamental factors. High global commodity prices is one of
the key factors behind the high inflation in Ukraine. This has resulted in
higher production costs in the country, including labor expenses.

Consumer demand remains high as well, backed by the
high growth of retail, record-high sales of automobiles, accelerated imports of
consumer goods, resurgence of international tourism, and higher demand for
services.

At the same time, there are some developments
indicating the stabilization of fundamental inflation pressure. The core
inflation during the previous three months stayed around 7% fostered by the
appreciation of the exchange rate, in particular.

The committee members noted that the macroeconomic
developments are generally in line with the NBU’s forecast. Therefore, the
trend of the key policy rate should stick with the earlier announced forecast,
which assumes the rate’s hike to 8.5%.

Evgeniya Akhtyrko: The latest
decision on the key policy rate demonstrates that the NBU’s monetary policy
committee members are in agreement regarding the vision of current economic
developments and the central bank’s policy. The regulator gave an explicit
signal regarding its intention to keep the key policy rate at 8.5% through the
end of the year. And this should bring more certainty to the business environment.