The National Bank of Ukraine (NBU) will keep its key policy rate unchanged at 17% after four hikes of the rate, as "the current monetary conditions are sufficiently tight to bring inflation back to its mid-term target", the regulator said in a statement on April 12.
The move followed the central bank's decision to increase its key policy rate by 1 percentage point (pp) to 17% from March 2.
In March, headline inflation continued to slow and stood at 13.2% year-on-year. At the same time, inflation exceeded the NBU’s targets, the regulator underlined. Core inflation was also elevated, at 9.4% y/y.
The NBU believes that "headline inflation will decline and return to the regulator's target range in mid-2019" to make 5.8% by the end of the year. In 2018, inflation will decelerate gradually to 8.9% in December, albeit remaining above the target. In 2020, inflation will slow to 5.0%, thus hitting the central point of the target range (5.0% ± 1 percentage point).
"On the one hand, the hryvnia appreciation in the first quarter will curb price growth, primarily for non-food goods, and will thus contribute to core inflation declining faster than forecasted in January," the regulator added.
"Moreover, previous decisions to hike the key policy rate will continue to impact deposit interest rates of commercial banks, thus restraining inflation. On the other hand, inflationary pressure will be maintained by a higher-than-expected growth in food prices amid increased exports and stronger consumer demand driven by higher household income."
Further, inflation will decrease thanks to the continued tight monetary policy, a rise in supply of food products, and a deceleration in imported inflation. As a result, inflation will return to its target range in the middle of 2019, the NBU believes.
The NBU has also kept its economic growth projections for 2018-2020. Acording to the central bank, the Ukrainian economy will increase by 3.4% y/y in 2018.
According to official data, Ukraine’s real GDP rose 2.5% y/y in 2017. GDP grew 0.1% quarter-on-quarter in 1Q17, 0.8% q/q in 2Q17, 0.5% q/q in 3Q17 and 0.5% q/q in 4Q17.
"Real GDP growth is projected to slow to 2.9% in 2019-2020. This will be due to fiscal easing effects wearing off and the central bank conducting a reasonably tight monetary policy to bring inflation back to the target," the NBU added. "However, economic growth could be higher if more decisive action is taken to implement structural reforms."