Page 54 - UKRRptOct21

NBU expects to keep key policy rate at 8.5% through year-end. The National Bank of Ukraine (NBU) disclosed more details of its September 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 September 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%.
NBU forecasts the key policy rate reduction in the second quarter of 2022. One of the main drivers of such inflation dynamics is the sustained high price level in the global commodity markets. Inflation in Ukraine’s MTPs also remains high, although in August there were signs of a slowdown. Raising the key policy rate to 8.5% in 2021 and rolling back the emergency monetary measures will be sufficient to ease inflationary pressures and return inflation to 5% in 2022 announced the NBU Monetary Policy Committee.
54 UKRAINE Country Report October 2021 www.intellinews.com