Ukraine to hold rate at 7.5% as inflation set to taper: Reuters poll

Headquarters of Ukrainian central bank is seen in central Kiev
FILE PHOTO: The headquarters of Ukrainian central bank is seen in central Kiev, Ukraine, March 3, 2016. REUTERS/Valentyn Ogirenko

July 20, 2021

By Natalia Zinets

KYIV (Reuters) – Ukraine’s central bank is likely to keep its key interest rate unchanged at 7.5% this week on expectations inflation will slow down in the coming months, a Reuters poll showed on Tuesday.

Ten out of 14 Ukrainian analysts forecast no rate change at the July 22 monetary policy meeting while the rest expected an increase to 8.0%.

The National Bank of Ukraine (NBU) left its main interest rate unchanged at the last monetary policy meeting in June though inflation had climbed to 9.5% in May from 6.1% in January.

The year-on-year reading remained flat in June, while monthly inflation slowed to 0.2% from 1.3% in May.

“The National Bank of Ukraine tries to maintain a soft monetary policy,” said Dmytro Boyarchuk from the think-tank CASE-Ukraine. “And if the NBU did not raise the rate when inflation accelerated to 9.5% y/y in May, then it is unlikely to increase when the consumer price index began to slow down in June.”

Analysts from the Ukrainian subsidiary of Raiffeisen Bank said seasonal factors and stronger hryvnia currency that made imports cheaper helped consumer prices stabilize in June.

“Thus, the current inflation trend… gives no grounds to raise the key rate at the next MPC meeting,” they said in a note, adding that inflation at the end of the second quarter was close to the central bank’s forecast of 9.2%.

The central bank has raised rates twice this year to try to bring inflation back into its target range of around 5% in 2022 and scaled back some anti-crisis measures at its June meeting.

Raiffeisen analysts said hryvnia’s performance and the gradual winding down of anti-crisis monetary expansionary instruments created the conditions for inflation to stabilize and reverse its uptrend in the future.

Kostyantyn Fastovets from the brokerage Adamant Capital, however, expects the central bank to raise the rate to 8.0% as he forecasts inflation to accelerate in July.

(Reporting by Natalia Zinets; editing by Matthias Williams and Tomasz Janowski)