Page 47 - UKRRptApr21

8.2 Central Bank policy rate
The NBU was the first central bank in the FSU to hike rates by 50bp to 6.5% at its March 4 meeting due to rapidly accelerating inflation.
More rate hikes likely. The National Bank of Ukraine (NBU) disclosed more details of its March 4 decision to hike the key policy rate by 0.5pp to 6.5% in the minutes of its monetary policy committee meeting published on March 15. They revealed that all of the present eight committee members spoke for hiking the key policy rate.
The committee members noted that consumer inflation accelerated significantly in the beginning of the year. As the NBU expected, it exceeded the upper bound of the inflation target range of 4-6%. Inflation risks strengthened, as global commodity prices grew faster than previously expected. In addition, the inflation pressure from Ukraine’s trading partners is increasing because of economic revival and devaluation effects in some countries.
Six committee members spoke for hiking the key policy rate to 6.5%, which is in line with the base scenario of the NBU’s macroeconomic forecast. They noted that the trend of core inflation is close to projections, and the increment of 0.5pp corresponds to the expectations at the market.
Two committee members favored hiking the key policy rate to 7.0%. They argued that the fast renewal of consumer demand will continue, while the economy will be resilient to the coronavirus crisis. Hiking the key policy rate by 100 bps would give the market a signal that the regulator is ready to deter inflationary pressure.
The committee members agreed that the NBU is likely to hike the key policy rate further in order to alleviate fundamental inflation pressure and to balance expectations. Four committee members believe that the key policy rate should be hiked to 7% in the future and kept at this level though the year-end. Others believe that such hike might be not sufficient and more decisive actions might be needed. All committee members agreed that the forecast for the key policy rate might need to be updated in central’s bank economic forecast in April.
47 UKRAINE Country Report April 2021 www.intellinews.com