Ukraine: NBU keeps key policy rate unchanged in September
September 3, 2020
At its 3 September meeting, the National Bank of Ukraine (NBU) decided to hold the key policy rate steady at its all-time low of 6.00%, marking the second consecutive hold and coming in line with market expectations.
The NBU’s decision to maintain its accommodative stance reflected its aim to support the economy’s recovery from the global pandemic and maintain moderate inflation. The inflation rate came in at 2.4% in both June and July, well below the Bank’s target range of 5.0% plus or minus 1.0 percentage point, as seasonal adjustments in raw food prices outweighed rising fuel prices. That said, the Bank sees inflation entering its target range by the end of the year on the back of recovering consumer demand and rising energy prices. In terms of economic activity, risks remain elevated, with the escalation of the military conflict, higher volatility in food prices and a new wave of Covid-19 infections all clouding the outlook. The NBU also reaffirmed its commitment to continue cooperating with the IMF in order to finance the budget deficit and coronavirus relief measures.
Looking ahead, the Bank stated that it will conduct policy according to how the pandemic evolves. On one hand, it “will be ready to give the economy additional impetus for growth” if risks to economic activity materialize. On the other, it could also deploy monetary policy tools to respond to increased inflationary risks in 2021. Nevertheless, the Board highlighted that there is still room for further policy rate cuts ahead. Some FocusEconomics panelists see more easing by year-end, while others see rates on hold.
Commenting on the possible direction of policy going forward, Andrew Matheny and Tadas Gedminas, analysts at Goldman Sachs, noted:
“The economic recovery in Ukraine remains on track, and we expect a sharp rebound in growth in 2020H2 and into 2021, with inflation also rising through 2020H2 and potentially overshooting the NBU's target in 2021H1. Set against this economic backdrop, we maintain our view that 6.0% will mark the trough in rates in Ukraine and that the next move in rates will be up (in our baseline scenario, in late 2021). Any further easing by the NBU would more likely come in the form of macroprudential measures aimed at improving the policy transmission mechanism.”
The next monetary policy meeting is scheduled for 22 October.