The National Bank of Ukraine (NBU) says the NBU Board has decided to keep its key policy rate at 6% per annum for the fourth time in a row.
"The Board of the National Bank of Ukraine has decided to keep its key policy rate at 6% per annum. On the one hand, this decision does not change the expansionary stance of monetary policy, which is important for economic recovery. On the other hand, it will keep inflation moderate," the regulator's press service said on its website on December 10.
As before, a rise in coronavirus cases and the imposition of stricter quarantine measures to overcome the pandemic remain the key risks to macrofinancial stability. This could result in gloomier consumer sentiment and subdued domestic demand, which would depress economic activity and restrain inflation.
Given rising inflationary pressures and great uncertainty, the NBU Board decided to keep the key policy rate unchanged, at 6%.
"Looking ahead, the NBU's monetary policy will mainly depend on how the pandemic develops and how high inflation risks are. If the epidemiological situation stabilizes quickly, the economy will continue to revive, accompanied by a moderate increase in inflation. The main stimuli will be provided by fiscal policy, including by an expected rise in the minimum wage," the report said.
That said, the NBU, while conducting a loose monetary policy, stands ready to raise its key policy rate in response to accelerating inflation on the back of a revival of the global and Ukrainian economies.
Conversely, the materialization of the adverse scenario will restrain consumer demand, slowing overall economic growth. Under such conditions, inflationary pressures will be weaker, enabling the NBU to give the economy additional monetary impetus for growth.
The next monetary policy meeting of the NBU Board will be held on 21 January 2021, the press service said.
Monetary policy easing
- The National Bank continued easing its monetary policy, cutting the key rate to 6% per annum effective June 12.
- Ukrainian banks' net profit grew by 23.6% in January-May 2020 year-on-year, to UAH 28.964 billion (US$1 billion).
- On June 24, 2020, First Deputy Governor of the NBU Kateryna Rozhkova said tamed inflation, stability of foreign exchange market, and failure-free operation of the banking sector promoted a further decrease in interest rates for households and businesses, which might be record low over Ukraine's independence by the end of the year.
- Average rates on hryvnia loans for businesses in the third quarter of 2020 decreased by 1 percentage point (pp) to 9.6% per annum, while those on loans for households dropped by 1.9 pp, to 30.9% per annum.