Ukraine central bank leaves key policy rate unchanged at 12.5%

Ukraine central bank leaves key policy rate unchanged at 12.5%
Ukraine central bank leaves key policy rate unchanged at 12.5%
By bne IntelliNews September 15, 2017

The National Bank of Ukraine (NBU) has left its key policy rate unchanged at 12.5% due to the need "to return inflation to the target path", the regulator said in a statement published on September 14.

In late May, the NBU cut its key policy rate by 0.5pp to 12.5%. The move was consistent with the pursuit of inflation targets set for 2017-2018 and will help drive economic growth in Ukraine.

The NBU believes that inflation will decelerate in 2017 at a slower pace than anticipated in July and fall to 9.1%. As a result, the 2017 year-end inflation is projected to deviate more significantly from the mid-point of the target range (8% ± 2 pp for end-2017), the regulator believes.

"In addition, recent months have seen a heightened  risk that underlying pressure on prices, particularly demand-driven pressure, will intensify in the medium term," the statement reads. "Consumption, which has picked up markedly on the back of rising wages, is expected to be further boosted by rising budgetary spending and pension payments over the next months."

"In view of the above risks, the NBU board has decided to keep its key policy rate at 12.5% per annum," the regulator underlined.

In August, annual headline inflation accelerated to 16.2%. In monthly terms, the consumer price index (CPI) decreased by 0.1% m/m, reflecting a seasonal decline in the prices of fruit, vegetables, clothing and footwear.

According to the central bank, actual inflation came in above the NBU’s projections in July, primarily reflecting faster-than-expected growth in raw food prices and tobacco products due to the so-called supply factors - the unfavorable weather conditions seen in spring 2017 pushed fruit and vegetable prices up, while significant exports of meat and dairy products led to an increase in domestic prices.

Second-round effects from rising prices for meat and dairy products, as well as higher production costs, including increased labor costs, which were passed through to prices for services, drove core inflation up, the NBU added in the statement. The core CPI increased by 0.2% month-on-month and by 7.8% year-on-iear in August.