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UAH17.3bn YTD, including growth of UAH6.6bn in its portfolio of local state bonds. The share of state bonds in the bank’s total assets remained unchanged YTD at 34%. At the same time, total exposure of the bank to state entities’ lending increased to 52% of the bank’s assets as of end-1H20, up from 46% as of end-2019.
8.2 ​Central Bank policy rate
The National Bank of Ukraine (NBU) disclosed more details of its July 23
decision to keep its key policy rate unchanged at 6.0%​ ​in the minutes of its monetary policy committee meeting published on August 3. They revealed that seven out of ten committee members spoke for keeping the key policy rate unchanged.
The committee members noted that some economic indicators point at gradual renewal of the Ukrainian economy. In particular, business sentiment in trade and manufacturing returned to the pre-quarantine levels. In June, the ​renewal in retail continued​, while the decline in imports of consumer goods slowed down. At the same time, the committee agreed that both consumers and business will be stringent in their consumption and investment decisions, given the high uncertainty regarding the further development of the situation with the coronavirus pandemic.
The NBU believes that the inflationary trend turned around in June. The gradual renewal of the global economy resulted in increased demand for energy resources and, consequently, in higher prices of fuel. This will result in price growth for other goods and services. The central bank predicts that consumer inflation will attain the target of 5% y/y at the end of 2020, and possibly reach 6% y/y in 2021.
Seven committee members, who spoke for keeping the key policy rate at 6.0%, believed this would restrain price growth during the economic renewal in 2021-2022. At the same time, this policy rate is low enough for the cost of loans to decline to single-digit levels.
The other three committee members – who were for cutting the key policy rate by 0.5pp to 5.5% – believe that consumer demand will remain depressed for quite a long time. In their opinion, a “careful” lowering of the key policy rate will have no negative impact on inflationary expectations. In their opinion, it will be difficult to overcome the negative consequences of the crisis without more sound support for monetary policy.
While discussing the further trend of the key policy rate through the year end, five committee members said they expect the key policy rate to be kept at the current level. Two members assumed the possibility of raising the key policy rate at the year end. Meanwhile, three committee members said they see room for a further cut of the key policy rate in the short term.
The majority of committee members agreed that the key policy rate is likely to be increased in 2021 in response to higher inflationary pressure. However, the NBU still might give the economy an additional impetus if the consumer and investment demand renews itself too slowly.
The Council of the National Bank of Ukraine (NBU) satisfied on July 31 a
54​ UKRAINE Country Report​ September 2020 ​ ​www.intellinews.com