Page 55 - UKRRptDec20

The changes in consumer and investor behavior might result in more continuous cooling in both the global and domestic economies. However, it is difficult to make an adequate assessment regarding the extent and the power of the pandemic’s effect on economic and inflation processes.
The committee also pointed to the uncertainty related to the impact of fiscal parameters in 2020-2021, as well as the proceeds from the international financial institutions. These factors might significantly impact the inflation trend in 2021-2022. ​ ​Most of the committee members believe that the renewal of consumer demand and business activity will go on. This, coupled with hryvnia devaluation and higher prices for energy resources, will result in growth of consumer prices. The NBU expects consumer inflation to reach 4.1% YTD in 2020. In 2021, inflation will temporarily go beyond the upper bound of the 4-6% target range.
Nine out of ten committee members agreed that the key policy rate should stay unchanged at 6% given significant uncertainty and inflation risks. The NBU assumes that the increasing risks will prevent the commercial banks from lowering interest rates both on credits and deposits. In addition, the banks’ expectations regarding the quality of loan portfolios remain negative.
The risk mark-up in the structure of credit interest rates is increasing. In particular, interest rates for government bonds have increased recently, and this resulted in a growing gap between the interest rates for government bonds and the key policy rate.
One committee member spoke for lowering the key policy rate to 5.75%. The member believes that the deterioration of the pandemic situation, and possible reinforcement of quarantine restrictions, will negatively affect the income of the population and will restrain the renewal of domestic demand. This will have a powerful disinflationary effect, which will outweigh the other factors.
While discussing the forecast of key policy rate, the opinions of committee’s members were divided. Some members believe the key policy rate should be kept at 6% through the year end, with a possible further hike in 2021, given the expected inflation risks. The other members believe that the key policy rate might be lowered in December in order to stimulate economic growth amid the pandemic.
55​ UKRAINE Country Report​ December 2020 ​ ​www.intellinews.com