Ukraine central bank leaves key policy rate unchanged at 12.5%

10.07.2017

The National Bank of Ukraine (NBU) has left its key policy rate unchanged at 12.5% per annum due to the need to reduce risks to achieving the inflation targets set for 2017 and 2018, the regulator said in a statement published on July 6.

Although headline inflation has increased in recent months, as expected, core inflation has been stable, the central bank underlined.

Headline inflation sped up to 13.5% in May and to about 15% in June, as estimated by the NBU. These figures were "slightly higher" than those projected by the NBU in April, the regulator said, adding that this was mainly attributed to a rise in raw food prices.

"An increase in global meat and dairy products has pushed up exports of Ukrainian products, cutting the supply of these products on the domestic market. The partial crop loss due to spring frosts and an increase in the supply of more expensive imported products have affected domestic fruit and vegetable prices," the NBU said.

Core inflation in Ukraine stood at 6.5% in May. It was reined in by consumer demand, which was lower than its potential level, as well as by prudent fiscal and monetary policies, according to the central bank.

"A significant improvement in inflation expectations, resulting, among other things, from favourable FX market conditions, helped reduce the pressure on prices," the statement added. "The UAH/USD exchange rate has been strengthening since early 2017, driven by a hike in global steel and grainprices and larger agricultural exports."

Meanwhile, in spite of a large supply of foreign currency on the domestic market, the demand for it remained depressed, the NBU said.

The regulator also underlined that a gradual easing of FX capital controls in Ukraine did not have any "material influence "on the FX market. "The NBU, although remaining committed to a flexible exchange regime, did not counteract the gradual appreciation of the hryvnia, while purchasing an excess supply of foreign currency in the interbank market to replenish international reserves," it said.

Since the start of the year, the NBU has purchased over $1.3bn on net basis, pushing up the country's international reserves to $18bn.


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