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Ukraine Monetary Policy July 2022

Ukraine: NBU holds steady at its July meeting

At its meeting on 21 July, the National Bank of Ukraine (NBU) decided to maintain its policy rate at 25.00%—the highest since March 2016—after the largest rate hike in 24 years at its June meeting.

The decision not to hike further was mainly driven by the Bank’s assessment that the 1,500 basis-point hike taken at its previous meeting was enough to improve the attractiveness of the hryvnia, guarantee healthy levels of international reserves and macroeconomic stability. On the other hand, a rate cut would have been premature: Inflation surged to 21.5% in June (May: 18.0%) due to war-driven supply-side factors. Moreover, the NBU expects inflation to remain elevated until the end of the year.

In its communiqué, the NBU commented that “the baseline scenario of the macroeconomic forecast envisages that the key policy rate will be maintained at 25% at least until Q2 2024”. Nonetheless, it remarked that if inflation continued to increase, it stood ready to further raise the key rate ahead. Most panelists expect the NBU to leave rates unchanged through the remainder of 2022. That said, projections remain tied to the outcome of the war.

The next monetary policy meeting is scheduled for 8 September.

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