NBU keeps key policy rate at 6%

The National Bank of Ukraine (NBU) announced on Oct. 22
that it decided not to change its key policy rate at its monetary policy board
meeting that day, keeping it at 6%. Keeping a soft monetary policy is aimed at
maintaining economic renewal and reaching the inflation target, the NBU noted
in a statement published on its website.

 

In September, consumer inflation was below the NBU’s
target range of 4-6%. Due to the increased supply of food, inflation slowed to
2.3% yoy. This factor neutralized the inflationary pressure caused by hryvnia
devaluation, price growth for energy products, the revival of economic activity
and consumer demand.

 

Taking into account the weak inflation in 3Q20, the
NBU revised downward its forecast of consumer inflation to 4.1% yoy in 2020.
The economic revival, soft monetary policy and growing prices for energy
products will boost consumer inflation, the NBU expects.

 

The NBU kept unchanged its 2020 GDP forecast of a 6.0%
yoy drop. In 2021, the economy will return to growth of 4.2% yoy, being driven
by private consumption.

 

The NBU expects the current account surplus to reach
2.9% of GDP in 2020. In the following year, the current account balance will
turn to a deficit of 2.3% of GDP. The deficit of the current account will
result from increased consumer demand and declining natural gas transit.

 

The central bank emphasized that the key assumption of
its forecast is continued cooperation with the IMF. The delay or suspension of
the program might not only result in slower economic revival, but also in
deterioration of inflation and devaluation expectations.

 

With IMF support, Ukraine’s gross international
reserves will stay around USD 29-30 bln in 2021-2022, the NBU estimates.

 

The major risk of the NBU’s forecast is an extended
COVID pandemic and the reinforcement of quarantine restrictions, the statement
said.

 

Evgeniya Akhtyrko: So far,
soft monetary policy seems to be not a very effective tool for boosting
inflation in Ukraine,
which could
stimulate economic revival. Although consumer inflation remains
relatively low, businesses are not rushing to lower their risk assessments of
Ukraine’s economy for various reasons. In particular, the government has been
unable to improve its receipts from primary local debt placements, even amid continuous interest rate hikes in recent weeks.