National Bank of Ukraine again keeps key policy rate at 12.5%

The NBU board today again decided to keep its benchmark discount rate unchanged at 12.50%. It has stayed at this level through the summer, when inflation was higher than expected by the NBU. The NBU said in a press release today that inflation acceleration to 16.2% y/y in August was due to accelerated food and tobacco price growth on the back of bad weather last spring and growing dairy and meat exports. Core inflation also accelerated in August, to 7.8% y/y and 0.2% m/m on service price growth. At the same time, the NBU expects disinflation later in H2 2017 thanks to base effects and a relatively stable hryvnia.

The NBU keeps its inflation targets at 6.0%-10.0% for this year. At the same time, the figure at end-December will be higher than the 9.1% forecast in July, said the NBU, as consumption has been growing fast along with wage growth. What’s more, the government is going to increase pensions in Q4 2017. At the same time, the NBU continues to expect that inflation will slow to 5.5%-9.9% by the end of Q1 2018 and further to 5.0%-9.0% by end-Q2 2018.

The current rate will stay until the NBU sees clear signs that inflation risks decreased, said the press release. The NBU said the same also after the previous rate-setting meeting in early August. The next rate-setting meeting of the NBU board is scheduled for Oct 26.

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