National Bank of Ukraine
September 14, 2017
From August 2015 through May of this year, a nine-step series of rate reductions slashed Ukraine’s policy interest rate from 30% to 12.5%. That level now lies below headline CPI inflation of 16.2%, which lately has crept higher. Core inflation also has climbed, but expected inflation has stayed pretty stable, helped by a firmer hryvnia. The latest policy review kept the policy rate at 12.5%. Future direction depends upon whether inflation resumes a downward trajectory as officials have been assuming. ”
The NBU will resume its monetary easing cycle once inflation risks abate and inflation expectations become well anchored. This is contingent on continued cooperation with the IMF, which envisages the implementation of structural reforms, as well as the authorities’ commitment to prudent fiscal policy. However, should demand-driven inflationary pressures increase, including due to a rise in social standards that is inconsistent with economic productivity growth as well as a significant increase in inflation expectations, the NBU may resort to a tighter monetary policy and raise its key policy rate to mitigate inflationary pressures and return inflation to the target level.
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