Ukraine central bank keeps key rate unchanged at 18%

Ukraine central bank keeps key rate unchanged at 18%
Ukraine NBU keeps rates on hold at high 18% as 8.9% inflation still too high / bne IntelliNews
By bne IntelliNews October 25, 2018

The National Bank of Ukraine (NBU) has kept its key policy rate on hold at 18% following its increase by 0.5 percentage points (pp) from September 7, the regulator said following the policy meeting in a statement on October 25.

"The current and forecast monetary conditions are sufficiently tight to bring inflation to its medium-term target of 5% in 2020," the central bank' statement reads.

In September, consumer price inflation reached 8.9% year-on-year, having exceeded both the upper limit of the target range (6.5% ± 2 pp set for the end of the third quarter of 2018) and the July projections of the regulator (8.3%).

The moderate drop in inflation compared with previous months was due to slower growth in food prices, driven by an increase in domestic and imported supply of food products, as well as lower global food prices. At the same time, the underlying inflationary pressure remains strong. This is reflected in the sustained high reading of core inflation (8.7% y/y in September), the NBU added.

Specifically, domestic demand remains high and further growth in production costs, including labour costs, put an upward pressure on prices. The hryvnia weakening against the US dollar in July-August influenced prices of some goods, especially imported ones. At the same time, the rapid growth in global crude oil prices seen in the past months passed through to fuel prices and contributed to higher cost of other goods and services.

"The above factors and the approaching presidential and parliamentary elections to take place next year affected the inflation expectations," the NBU added. "In particular, expectations of households deteriorated. Businesses, banks, and financial analysts maintain high inflation expectations, at levels much above the NBU’s inflation targets."

The NBU promised "to keep a close watch" on factors of underlying inflationary pressures, in particular on consumer demand, inflation expectations and any progress achieved in ensuring cooperation with international official lenders. If inflation pressures do not ease or build up, the central bank could raise the key policy rate again.

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