National Bank of Ukraine

March 1, 2018

A fourth sharp central bank interest rate hike since late October was been engineered in Ukraine. It’s size like the one last October 26th and a second move in mid-December was by 100 basis points. The third hike of this cycle was by 150 basis points and came on January 25th. Ukraine’s policy interest rate now stands at 17.0%, still far below the previous up-cycle peak of 30% seen in mid-summer 2015. According to a statement released today,

 The NBU believes that after several policy rate increases, which began in October 2017, the current monetary conditions are sufficiently tight to bring inflation back to its mid-term target, as projected in the January 2018 Inflation Report.

However, if fundamental inflation risks increase further, the NBU may resort to further key rate hikes. The next key rate decision, which will be taken in April 2018, will factor in new macroeconomic projections, inflation projections in particular.

Consumer prices in Ukraine soared 14.1% in the 12 months through January. The statement enumerates a bunch of elevated inflation risks that have not receded as quickly as central bank officials would have hoped. While the Ukraine currency, the hryvnia, recovered ground against the dollar last month, it didn’t do so against the all-important trade-weighted currency index. That probably needs to happen to slow inflation and expected inflation. Rapid growth in consumer demand and Ukraine’s high vulnerability in light of the postponed EFF program with the IMF are other upside inflation risks.

Copyright 2017, Larry Greenberg. All rights reserved.  No secondary distribution without express permission.

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