Ukraine: Central Bank holds key policy rate unchanged
July 6, 2017
The National Bank of Ukraine (NBU) decided to hold the key policy rate at 12.50% at its 6 July monetary policy meeting. The decision follows a 50 basis point cut at May’s meeting and signals a pause in the Bank’s loosening cycle.
The move was driven by a need to keep price pressures in check after inflation rose in recent months. A rise in global agricultural prices has ramped up price pressures despite economic slack in Ukraine. Despite the recent rise in inflation, the NBU held its projections unchanged at 9.1% for 2017 and 6.0% for 2018, within the respective target ranges for those years. The Bank, however, revised its growth forecast down to 1.6% for 2017, due to a worse performance in H1 than previously expected. The trade halt with the rebel-held areas of the country caused industrial production to plummet in H1 and has chipped away at the economy’s recovery. The NBU sees growth picking up to 3.2% in 2018, although stressed that this forecast is under the key assumption of continued support from the IMF.
Looking forward, the Bank stressed that a continuation of its easing cycle would depend on the trajectory of inflation. The Bank sees upside and downside risks to its inflation forecast as equally probable and emphasized that unsuccessful reforms or an escalation of the military conflict could prevent it from lowering rates. The next policy meeting is scheduled for 3 August 2017.