"With the aim of bringing inflation to the inflation targets … the NBU deems it necessary to hike the key policy rate, up to 13.5% per annum," the NBU said on its website.
The decision to raise the key policy rate to 13.5% is approved by NBU Board Decision on the Key Policy Rate No. 688-D, dated October 26, 2017.
Read alsoPace of price growth in Ukraine accelerates to 16.4%According to the NBU, tighter monetary policy is primarily aimed at preventing inflation expectations from further deterioration. Moreover, tighter monetary stance is a response to higher risks of delays in resumption of cooperation with the International Monetary Fund and faster expansion of consumer demand owing to rising social standards.
"In September 2017, headline inflation accelerated to 16.4% year-over-year, which exceeded the NBU forecast published in the July Inflation Report," the NBU said.
"Tighter monetary policy will help curb inflation through several channels. A rise in key police rate will facilitate an inflow of savings into the banking sector and, therefore, restrain consumer demand. Also, higher interest rates make financial instruments in domestic currency more attractive than those in foreign currency, which will have a positive effect on inflation via the exchange rate channel," the NBU added.
The NBU Board is confident that the achievement of price stability is key to sustainable economic growth. Steady improvement of inflation expectations is a major factor in reducing banks' interest rates in the medium term.
In the event of realization of the above inflation risks, the NBU may further raise the key policy rate to offset their effects and return inflation to its target path.
However, in case of deceleration of inflation according to the forecast, further cooperation with the IMF, and pursuing prudent fiscal policy, the NBU may return to the easing cycle of monetary policy at the end of 2018.
The next meeting of the NBU Board on monetary policy issues will be held on December 14, 2017 as scheduled.
