Ukraine: NBU raises rates in September, as previously hinted
September 9, 2021
At its 9 September meeting, the National Bank of Ukraine (NBU) raised its key policy rate by 50 basis points to 8.50%, as expected by some market analysts after the Bank implied at its previous meeting that it would raise rates again before year-end. The move marked a continuation in the monetary policy tightening cycle following three similar hikes in March, April and July. Moreover, the Bank decided to continue phasing out the use of its emergency monetary instruments. The NBU’s decision to increase the rate was prompted by elevated price pressures, as inflation remained at July’s over three-year high of 10.2% in August, therefore staying well above the NBU’s forecast and over twice as high as its 5.0% target. Price pressures are expected to remain elevated in the remainder of the year, before slowly returning to the target in 2022. That said, the Bank particularly stated that Russian hostility and a weak external sector pose risks to the inflation outlook. Meanwhile, although GDP growth for Q2 was weaker than expected, available data hints at robust growth in the third quarter on the back of recovering domestic activity, firming external demand and favorable agricultural conditions, thus cementing the NBU’s decision to tighten its stance.
In its communiqué, the Bank struck a hawkish tone, stating that “If underlying inflationary pressures increase significantly and inflation expectations continue to worsen, the NBU stands ready to take additional measures to return inflation to its 5% target”.
That said, following this most recent hike, the majority of our panel sees the key rate staying at 8.50% through to year-end.
Regarding the outlook, Andrew Matheny and Tadas Gedminas, analysts at Goldman Sachs, commented:
“[The Bank] stated that it stood ready to tighten policy further in the event that underlying inflationary pressures increase or if inflation expectations deteriorate. This suggests to us that the NBU is likely close to or at the end of its tightening cycle, after delivering a cumulative 250bp of rate hikes this year. […] At the same time, risks in the near term likely remain skewed to the hawkish direction considering that inflation continues to surprise to the upside across most economies and the NBU has been proactive this year in responding to deterioration in inflation developments.”
The next monetary policy meeting is scheduled for 21 October.