National Bank of Ukraine

December 8, 2016

Ukraine’s central bank interest rate had been ratcheted up to as high as 30% last year to counter exchange rate depreciation and the inflation such causes. Once stabilization had been secured, such was slashed by 3 percentage points (ppts), 5 ppts and 4 ppts in August and September 2015, and May of this year. Four additional cuts followed of 150 basis points in June, 100 bps in July, 50 bps in September and 100 bps in late October, bringing the rate down to 14%. The latest meeting of the central bank board did not change policy further. Inflation accelerated in October to 12.4% on year, and retaining a 14% policy rate level was deemed necessary “to mitigate inflation risks to enable the NBU to meet the inflation targets for 2017-2018.” The target inflation corridors for those years are 6-10% and 4-8%, respectively. Although these goals are still considered to be “within reach”, the central bank board members conceded that “the risks to further inflation developments have increased since the previous monetary policy meeting, prompting the NBU to adopt a cautious approach to easing monetary policy to meet the declared targets.” Specifically, the released statement notes that due to a recent rise in the minimum wage, “higher households’ income will fuel consumption growth, which could add an additional 1 percentage point to headline inflation.”

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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