Page 44 - UKRRptOct18

y/y, was in line with the NBU's forecast, the release mentioned. As factors, the regulator cited higher supplies of domestic and imported foods and hryvnia appreciation in 1H18. Meanwhile, relatively high core inflation still points to “persisting fundamental inflationary pressure," the NBU said.
The slowdown won't be sustained in 4Q18 because of expected hikes in prices that are administratively regulated, particularly natural gas. High consumer demand and consumer price growth will also play a role.
At the same time, tight monetary policy, embodied by the high key policy rate, should curb pro-inflationary factors. The NBU emphasized that continuing cooperation with the IMF is a key factor in keeping inflation at targeted levels.
The regulator also believes that increased devaluation pressure during the summer months should not substantially affect the current trend of consumer inflation. Indeed the currencies of most of Ukraine’s major trading partners - including Russia and Turkey - devalued more during this period.
The central bank has kept unchanged its 2018 consumer inflation forecast of 8.9% y/y. It also reiterated that the target range of 4-6% y/y will be reached at the end of 2019, while the mid-term inflation target of 5% will be achieved in 2020.
External risks have swelled since the previous revision of the key policy rate on July 12, the NBU stated. In particular, it mentioned rising pressure on currencies of emerging economies caused by capital run. This might impede the access of Ukrainian borrowers to global markets and harm Ukrainian exports.
Additional risk factors are hryvnia volatility and worsening inflation related to the 2019 presidential and parliamentary elections, the release said.
The National Bank of Ukraine (NBU) says increased external risks call for a tighter monetary policy. The NBU disclosed more details of its Sept. 6 decision to increase its key policy rate by 0.5pp to 18.0% in more minutes of the monetary policy committee meeting published on Sept. 18. The minutes reveal that all ten members of the NBU’s monetary policy committee, who were all present at the meeting, unanimously agreed on the need to hike the key policy rate, citing increased external risks. In particular, eight committee members called for a hike of 50 bps to 18.0%, while two members were for an increase of 100 bps to 18.5%. In particular, the committee mentioned the capital run from emerging markets. Devaluation of national currencies among Ukraine’s trading partners might result in lower competitiveness of Ukraine’s goods on external markets. In addition, the overall lower interest of international investors to emerging markets might impede the access of Ukrainian borrowers to the global capital markets. The NBU officials also discussed increased trade-related uncertainty hurting Ukraine’s exports. Among other risks, the committee mentioned faster-than-expected growth in consumer demand. When discussing the recently increasing devaluation pressure on the Ukrainian national currency, the committee members agreed that the direct impact on inflation will not be substantial given the fact that YTD hryvnia devaluation was much lower than the devaluation of trading partners’ currencies. At the same time, the central bank admits that hryvnia devaluation pushed inflationary expectations higher. To reduce the volatility of the exchange rate, the NBU will make interventions on the ForEx, but it will abstain
44 UKRAINE Country Report October 2018 www.intellinews.com