Central Bank Rate Hike in Ukraine Wasn’t Expected

March 4, 2021

Above-target inflation in Ukraine inspired officials at the National Bank of Ukraine to hike their policy interest rate by 50 basis points to 6.5%. The move was unexpected and the first tightening since a 50-basis point advance to 18.0% in September 2018. Officials had eased five times by a total of 450 basis points in 2019 and four times by a total of 750 basis points last year. A released statement by monetary officials notes that CPI inflation in Ukraine moved above the 4-6% target range in January and likely rose further last month. The tightening is intended to prevent price pressures that thus far have been concentrated in food and fuel from becoming entrenched in a wider spectrum of goods and services and to stabilize expected inflation. Officials foresee the peak occurring around the middle of this year and inflation thereafter falling gradually and into its target range during the first half of 2022. They are prepared to raise the interest rate further if that doesn’t seem to be happening. One inflationary concern is the lagged impacted of Ukraine’s currency depreciation last year. Ukraine joins Mexico, Zambia, and Kyrgyzstan in a small circle of central banks that have raised interest rates so far this year.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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