The National Bank of Ukraine (NBU) has set a target inflation rate at 5% from December 2019.
This is stipulated in the NBU’s monetary policy strategy approved by the NBU council in July and posted on the regulator’s website on Tuesday.
“The best benchmark for inflation (the Consumer Price Index year-over-year) … is determined by the NBU at 5% ± 1 pp. The phase of reducing the inflation target from the current level to 5% will take place until December 2019. And since December 2019, this goal set at % will be constant and can only be revised downwards if the volatility of the hryvnia forex rate reduces, reference prices change and the effects of the convergence of the Ukrainian economy are lowered to the level of the countries that are major trading partners,” the document says.
According to the strategy, in certain periods, inflation may deviate from the established benchmark because of the influence of factors not subject to the NBU’s monetary policy. For example, it could be a change in commodity prices or a deviation of administratively regulated prices from the previously declared level. However, the NBU, as before, will use monetary tools to return inflation to the target numbers, it said.
The document also stipulates the application of the interest rate corridor for overnight credit and deposit transactions to manage short-term interest rates of the interbank credit market by limiting their fluctuations around the key interest rate. It also provides for the possibility of applying differentiated mandatory reserve requirements to improve the effectiveness of regulating the liquidity of the banking system and encouraging banks to raise funds primarily in the national currency and for a longer period.
The NBU monetary policy strategy confirms the need for institutional independence of the regulator. It says that the NBU should avoid any form of fiscal dominance, including direct or indirect support of budget expenditures.
As reported, the document is the successor of the NBU’s monetary policy strategy for 2016-2020, which was approved by the board of the central bank in August 2015.
The new monetary policy strategy retains key elements of the inflation targeting regime, defines the main objectives of the monetary policy, the principles, tools and directions of their evolution for the medium term. At the same time, the specifics of the application of the monetary policy tool will be reviewed annually, taking into account the state and risks of the external and internal macroeconomic environment, and will be approved by the NBU Council in the annual Monetary Policy Fundamentals.
Consumer prices in Ukraine in May 2018 remained unchanged from the previous month, while inflation was 0.8% in April, 1.1% in March, 0.9% in February and 1.5% in January, the State Statistics Service has said. According to the agency, in annual terms (May2018 to May 2017) the rise of consumer prices slowed down to 11.7% from 13.1% in April, 13.2% in March, 14% in February, and 14.1% in January.
Underlying inflation in May 2018 fell to 0.2% from 0.6% in April and 1.4% in March, in annual terms being 9.3%.
The service said that since the beginning of the year consumer prices in Ukraine have increased by 4.4%, while underlying inflation was 3.5%.
In May compared with April 2018 prices for food and non-alcoholic beverages decreased by 0.7%. Prices for eggs and buckwheat fell most of all (by 9.5% and 7.3%). Prices for vegetables, milk and dairy products, sugar, lard, fruits, rice, sunflower oil fell by 2.9-0.5%. At the same time, prices for fish, pasta, bread, and non-alcoholic beverages rose by 0.8-0.5%.
Prices for alcoholic drinks and tobacco products grew by 1.8%, in particular for tobacco products by 2.4%, alcoholic drinks by 1.0%.
The growth of tariffs for housing, water, electricity, gas and other fuels by 0.1% was mainly due to the increase in water supply tariffs by 2.2%, sewerage by 1.8%, and housing maintenance by 1.2%.
The National Bank of Ukraine (NBU) confirmed the forecast for 2018 inflation at 8.9% in April. “According to the estimates of the National Bank, the deviation of the actual inflation in April from the forecast is insignificant and can be leveled out in the following months. In addition, the monetary conditions are still tough enough to ensure a gradual decline in consumer inflation in accordance with the forecast of the National Bank (8.9% year-on-year at the end of 2018) and its return to the target range in mid-2019,” the NBU reported.
According to the State Statistics Service, in April consumer inflation continued slowing down for the third consecutive month and amounted to 13.1% year-on-year (compared to 13.2% in March). Inflation in monthly terms decreased from 1.1% in March to 0.8% in April.
“Although the National Bank expected inflation to decline year-on-year, its April figure slightly exceeded the forecast published in the Inflation Report for April 2018, mainly due to the influence of the most volatile components,” the National Bank said in a statement.
The National Bank at the end of October last year worsened the inflation forecast for 2018 from 6% to 7.3%, in January this year to 8.9%, while the Cabinet of Ministers from 7% to 9%.
The NBU, to curb price increases, from March 2 raised the refinancing rate to 17% from 16%.
The Ministry of Economic Development and Trade and the Ministry of Finance of Ukraine expect the country’s GDP will grow by 3.6% in 2019. The corresponding forecast is contained in the draft titled “Main Guidelines of Budget Policy” submitted by the Cabinet of Ministers on Wednesday. The growth of the consumer price index (inflation) by the end of 2019 is expected at 6.5%, the average annual forex rate of the hryvnia against the U.S. dollar is projected at UAH 30.5.
Earlier it was reported that the National Bank of Ukraine predicts the acceleration of GDP growth in 2018 to 3.4% from 2.5% in 2017 and a slowdown in 2019-2020 to 2.9%.
Regarding the consumer price index, the NBU expects inflation to slow to 8.9% by the end of 2018 from 13.7% in 2017, while a forecast for 2019 is set at 5.8%, in 2020 at to 5%.