Photo from UNIAN, by Volodymyr Hontar

The National Bank of Ukraine (NBU) says the NBU Board has decided to raise the key policy rate to 7.5% per annum after the regulator increased it to 6.5% in March 2021.

"The Board of the National Bank of Ukraine has decided to raise the key policy rate by 1 [percentage point] pp, to 7.5% per annum. This step is aimed at gradually slowing down inflation in [the second half of 2021] H2 2021 and returning it to the 5% target already in H1 2022," the regulator's press service said on its website on April 15.

Read alsoWorld Bank predicts mild recovery of Ukraine's economy in 2021The major assumption, which the NBU Board takes into account, is the continuation of cooperation with the International Monetary Fund (IMF).

"The NBU expects that Ukraine will make further progress in its talks with the IMF. Cooperation with the IMF and other international partners will enhance the government's ability to support the economy during the crisis, while also helping Ukraine pass through the period of debt repayments that will peak in the coming autumn. This cooperation will help maintain Ukraine's international reserves at a reasonably high level of US$29 to 30 billion in 2021 – 2023," the report said.

Meanwhile, the key risk to the macroeconomic forecast is the imposition of stricter quarantine measures in Ukraine and globally, and the slow pace of the vaccination campaign domestically.

The NBU's baseline forecast envisages that the key policy rate will remain unchanged, at 7.5%, until the end of 2021. Given current inflationary movements, this should suffice to bring inflation back to its 5% target in H1 2022.

"However, if underlying inflationary pressures rise more noticeably than currently expected, and if inflation expectations worsen, there could be the need for further tighter monetary policy tightening. The NBU stands ready to continue raising its key policy rate to a level that will bring inflation back to its 5% target in H1 2022," the press service said.

Background

  • The National Bank of Ukraine raised the key policy rate to 6.5% per annum in March 2021.
  • The NBU in June 2020 cut the key rate to 6% per annum, hitting a historic low in independent Ukraine. The regulator also decided to keep it unchanged in July, September, October, December 2020, and January 2021.