Ukraine Monetary Policy May 2016


Central Bank cuts key interest rate

Amid stabilizing inflationary pressures in Ukraine’s battered economy, the National Bank of Ukraine (NBU) decided to cut the key policy rate from 19.00% to 18.00% at its 26 May monetary policy meeting. The result surprised market analysts who had not expected a change in the key rate. At its April monetary policy meeting, the NBU announced that it had converged the discount rate and the key policy rate to improve transmission of monetary policy.

In its accompanying statement, the Central Bank outlined that the decisions came against a backdrop of easing price pressures thanks to prudent monetary policy and an appreciation in the exchange rate as well as weak domestic demand. While inflationary pressures have abated notably in recent months, the Bank pointed out that increased tariffs for heating and hot water will contribute to price pressures this year, but gradually fade in 2017. The Bank added that upward pressure on prices from domestic demand is expected to be insignificant and further easing could be in the cards if risks to the inflation outlook abate further. The Bank emphasized that cooperation with the IMF remains key to ensuring price stability. The next monetary policy meeting is scheduled for 23 June.

FocusEconomics Consensus Forecast panelists expect the NBU’s key policy rate to end the year at an average forecast of 16.04%. For 2017, panelists expect the key policy rate to fall to 11.86%.

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