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Ukraine’s central bank holds key policy rate at 12.5%

Ukraine’s central bank holds key policy rate at 12.5%

KIEV: The Board of the National Bank of Ukraine (NBU) has decided to keep its key policy rate at 12.5% per annum, the NBU said in a press release. Resolution No. 593-rsh on the size of the refinancing rate was passed by the NBU Board on September 14, the central bank wrote on its website. “The decision was prompted by the need to return inflation to the target path,” the bank said. In August, annual headline inflation accelerated further to 16.2%. Meanwhile, in monthly terms, the Consumer Price Index (CPI) decreased by 0.1%, reflecting a seasonal decline in the prices of fruit, vegetables, clothing and footwear.

“Actual annual inflation came above the NBU’s forecast of CPI path published in the July 2017 Inflation Report, primarily reflecting faster-than-expected growth in raw food prices and tobacco products. As in previous months, this was due to 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,” the NBU said. Underlying inflationary pressure remained moderate, due to a further improvement in inflation expectations, it said. The 12.5% rate has been in effect since May 26. The rate was 13% prior to that. Through the end of the year, inflation is expected to trend downwards in annual terms, primarily reflecting last year’s high base of comparison, the expected moderate volatility of the exchange rate, and the fading effects of inflation surprises.

The NBU projects that appropriately tight monetary policy should help anchor inflation expectations and bring inflation closer to the mid-point of the target range in Q2 2018. Further on, the need to return inflation to the target may prompt the NBU to keep its key policy rate at its current level until the central bank sees clear signs of alleviation of inflation risks. “The NBU will resume its monetary easing cycle once inflation risks abate and inflation expectations become well anchored. This is contingent on continued cooperation with the IMF, which envisages the implementation of structural reforms, as well as the authorities’ commitment to prudent fiscal policy,” the NBU said.