Page 56 - UKRRptSept21

8.2 Central Bank policy rate
The National Bank of Ukraine (NBU) disclosed more details of its July 22 decision to hike the key policy rate by 0.5pp to 8.0% in the minutes of its monetary policy committee meeting published on August 2. They revealed that six out of eight present committee members spoke for this decision, while two other members called for a hike of 1.0pp.
The committee members noted that consumer inflation stayed at 9.5% y/y in June. It was higher than expected in the NBU’s forecast in April. On the one hand, this inflation trend was caused by temporary factors, including the effect of the low comparative base of the previous year and high global prices for energy resources and food. On the other hand, the fundamental inflation pressure increased as well. In particular, core inflation accelerated to 7.3% y/y (vs. the forecast of 6.8% y/y) as a result of increased costs of business for raw materials and labor as well as high consumer demand.
The further increase of inflation pressure was the reason for hiking the key policy rate. The NBU’s updated forecast assumes that consumer inflation will be beyond the upper bound of the inflation target range for the greater part of 2022.
The two committee members who spoke for hiking the key policy rate by 1pp to 8.5% believe that inflation risks both in Ukraine and globally are increasing and thus call for harder monetary restrictions. The hike of the key policy rate by 1pp would be a better signal to the market of the NBU’s intention to curb inflation with monetary tools.
The majority of the committee members expect the NBU to hike the key policy rate one more time by 0.5pp by the end of 2021 and to keep it approximately through 2H22. This should help to control inflation expectations, alleviate inflation pressure and reach the inflation target of 5% y/y in 2022.
56 UKRAINE Country Report September 2021 www.intellinews.com