All members of the National Bank's Monetary Policy Committee supported the decision to suspend the cycle of rate cuts and keep it at 13% in July. This was reported by the regulator's press service.
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What the NBU thinks
The participants in the discussion agreed that, in the context of increasing inflationary pressure, a higher inflation forecast and the potential for some inflationary risks to materialize, such a decision by the NBU will have a calming effect on inflation and exchange rate expectations.
The members of the NBU Committee noted the importance of such a decision in the context of the NBU's task of maintaining an appropriate level of real yield on hryvnia instruments, which will limit pressure on the foreign exchange market and will help bring inflation closer to the 5% target over the forecast horizon.
According to the NBU's updated calculations, in the following months, inflation will not only catch up with the April forecast trajectory, but will even slightly exceed it and amount to 8.5% at the end of the year.
In particular, price pressure is growing due to increased business expenses on wages and electricity, as well as partial pass-through of the hryvnia depreciation to prices. In addition, government measures to mobilize additional revenues to support defense capability may also have an inflationary effect.
The majority of the KMP members are convinced that at the stage of expected inflation acceleration and probable deterioration of the NBU's inflation expectations, it is advisable to suspend the cycle of reducing the key rate at least until the end of 2024.
We remind you that on July 25, the NBU decided to leave the key rate at 13%.
What does the rate change mean?
A change in the key rate is an important signal for banks to determine interest rates on deposits and loans. The higher the key rate, the more expensive loans and deposits in national currency.
The maximum key rate in Ukraine was 300% (October-December 1994), and the minimum was 6% (June 2020 – March 2021).
- NBU Key Rate