Ukraine central bank keeps policy rate flat at 22%

The National Bank of Ukraine (NBU) decided to keep its policy rate unchanged at 22%, according to an Oct. 29 press release. The NBU recognized positive tendencies in the economy. However, the recent acceleration in consumer inflation (+2.3% m/m) created concerns and prompted the NBU to adopt restraint in its approach.

Alexander Paraschiy: It’s not only inflation tendencies, but also resumed pressure at the ForEx, that are the key factors in preventing the NBU from further policy rate reductions. In fact, the policy rate has had a minimal impact on lending and inflation in general since only a small fraction of businesses use banking loans. However, it’s directly linked with ForEx volatility since the policy rate regulates resources for speculative operations. Given that pressure at the ForEx will only be growing on the back of accelerated budget spending, we can hardly expect any further reductions in the policy rate by the year end.