The Board of the National Bank of Ukraine has decided to keep its key policy rate at 6% per annum.
The NBU expects inflation, which increased to 3.8% in November, into the target corridor of 5% +/- 1 pp at the end of the year and further growth in consumer prices in the following months, the central bank said on its website on Thursday.
According to the NBU estimates, the quarantine restrictions announced by the government for January 2021 will not have much influence on economic activity, consumer demand, and thus on inflation.
At the same time, balanced monetary and fiscal policies will not only contribute to the resumption of economic growth, but also will maintain inflation at moderate levels.
“Cooperation with the IMF remains fundamental for the recovery of Ukraine’s economy. Financing provided by the IMF and other international partners is crucial for the planned budgetary spending. Without this support, the fiscal impulse required to revive the economy will be much smaller, and the recovery will take longer,” the message reads.
Ukraine’s fulfillment of its obligations under agreements with international lenders will unblock next tranches of official financing. This will reduce interest rates on state borrowing on the domestic and foreign markets.
The NBU added that 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.
It is indicated that if a negative pandemic scenario is implemented, which will restrain consumer demand and slow down economic growth in general, the National Bank will be able to provide the economy with an additional monetary impulse.
“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 release says.
A summary of the discussion by Monetary Policy Committee members that preceded the approval of this decision will be published on 21 December 2020. The next monetary policy meeting of the NBU Board will be held on 21 January 2021, according to the confirmed and published schedule, the regulator reminds.
