Ukraine Monetary Policy January 2019


Ukraine: Central Bank holds the key policy rate stable in January

January 31, 2019

At its 31 January meeting, the National Bank of Ukraine (NBU) kept the key policy rate fixed at 18.00%, thus leaving it at a near three-year high. The decision marked the fourth consecutive meeting where the policy stance remained unchanged after analysts had been split between a hold and a rate cut of 50 basis points.

Despite decelerating substantially throughout the year, inflation ended 2018 well above the Bank’s target range of 6.0% plus or minus 2.0 percentage points. Inflation moderated to 9.8% in December (November: 10.0%) but remained elevated due to higher administered prices, rising wages and buoyant consumer demand, leaving the NBU little space for easing its policy stance. According to the NBU’s communiqué, tight monetary conditions have been instrumental in providing much needed support to the hryvnia, which also benefits from higher prices of Ukrainian exports and a greater inflow of remittances. Furthermore, the Bank’s tight monetary policy stance remains necessary to keep inflation on a firm downward trend.

In the accompanying statement, the Central Bank of Ukraine confirmed its key monetary policy objective of reducing inflation to the 5.0% target by the end of 2020. The Bank expects inflation to ease gradually this year and next, mainly thanks to tight monetary policy conditions and also as pro-inflationary risks stemming from uncertainty over relations with the IMF retreat. In addition, prudent fiscal policy, slower wage growth and lower global energy prices should all suppress inflation.

Looking forward, the Bank is likely to begin its policy easing cycle in the coming months if pro-inflationary risks stay at bay. Nevertheless, the risks to the inflation outlook persist: Administered prices are set to increase further, while economic activity could well run out of steam as public spending moderates amid upcoming public debt repayments and as external conditions soften due to a general cooling in global growth and trade.

The next monetary policy meeting is scheduled for 14 March.

Ukraine Interest Rate Forecast

FocusEconomics Consensus Forecast panelists see the key policy rate ending 2019 at 15.58%. For 2020, the panel expects the key policy rate to fall to 12.54% by year-end.

Author:, Research Team Manager

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