Ukraine: Central Bank hikes key rate amid rising inflation
December 14, 2017
The National Bank of Ukraine (NBU) decided to raise the key policy rate from 13.50% to 14.50%, the second consecutive hike, at its 14 December monetary policy meeting. The Central Bank has had to reverse course on its easing cycle to support the battered recovery in the last half of 2017 due to heightened inflation risks. Starting in August 2015, the Bank had gradually lowered the key rate to 12.50% from 30.00%.
December’s hike was driven by a need to keep price pressures in check and bring inflation down to target. Rising prices for commodities, along with buoyant consumer demand, have caused price pressures to spike in recent months. The NBU commented in its accompanying statement that recent inflation figures have deviated from target more than it previously expected. In addition, the Bank pointed out that since its last monetary policy decision several risks to the inflation target have emerged, including: a more expansionary 2018 budget by the government than expected and risks that the next IMF tranche will be postponed.
Looking forward, the Bank stressed that if fundamental inflation risks continue to increase, it would raise rates further. The next policy meeting is scheduled for 25 January.