Ukraine: Central Bank continues easing cycle in September
October 27, 2016
Stabilizing inflationary pressures in Ukraine’s tattered economy prompted the National Bank of Ukraine (NBU) to decide to cut the key policy rate from 15.00% to 14.00% at its 27 October monetary policy meeting. The decision marked the Bank’s sixth consecutive cut.
In its accompanying statement, the Central Bank outlined that price pressures are on track to meet its target of 12.0% plus or minus 3.0 percentage points in Q4, in part due to an upward adjustment in utility tariffs. Statistical base effects will likely cause inflation to follow an erratic path next year, however, these effects should wane by Q4. The Bank left its inflation targets unchanged at 8.0% plus or minus 2.0 percentage points for end of 2017 and 6.0% plus or minus 2.0 percentage points for end 2018.
The NBU left its economic growth forecasts unchanged for 2016 at 1.1% but now sees a more moderate pace of GDP growth for the medium term. The Bank now expects GDP to expand 2.5% in 2017 and 3.5% in 2018 due to a deteriorated external environment for Ukrainian exports. The Bank expects investment activity to lead the country’s recovery and that the current account will swing to surplus in 2017 due to higher FDI inflows.
Looking forward, the Bank stressed that as long as prices evolve as expected and risks abate, the NBU will continue with monetary easing to underpin economic growth. The Bank highlighted that further progress in the IMF program is critical for bringing inflation to target and boosting the economy. The next policy meeting is scheduled for 8 December.