NBU Retains Discount Rate At 14%

The National Bank of Ukraine has decided to leave the discount rate unchanged at 14% per annum.

Ukrainian News Agency learned this from decision No.475-rsh of the NBU Board dated December 8.

This decision was prompted by the need to mitigate inflation risks to enable the NBU to meet the inflation targets for 2017-2018.

In October 2016, annual headline inflation stood at 12.4%, which was broadly in line with the NBU forecast. The acceleration of headline inflation was mainly attributed to upward adjustments in administered prices and base effects.

In November 2016, according to the NBU estimates, inflation moderated slightly in line with the projected disinflation path. The further slowdown in annual core inflation contributed to the deceleration of inflation.

In addition, price increases for unprocessed foods were moderate due to a higher supply of these food products. Moderate price increases for unprocessed foods offset inflationary pressure from higher fuel prices driven largely by global price developments and the reflection of upward adjustments in administered prices in price statistics.

"Headline inflation is bound to reach the target level of 12% by the end of the year. Also, the inflation targets for 2017 and 2018 (8%+/-2 ppts and 6%+/-2 ppts respectively) remain within reach," the central bank believes.

However, the risks to further inflation developments have increased since the previous monetary policy meeting, prompting the NBU to adopt a cautious approach to easing monetary policy to meet the projected targets.

First, the NBU has taken into account the need to buffer the effects from a sharp rise in the minimum wage in 2017 exchange rate.

According to the NBU's estimates, the government's initiative to raise the minimum wage will have a limited impact on inflation. However, higher households' income will fuel consumption growth, which could add an additional 1 percentage point to headline inflation.

Accordingly, to buffer the effects from a rise in the minimum wage, NBU has decided to pursue a more restrained monetary policy.

As Ukrainian News Agency earlier reported, the NBU on April 22lowered the discount rate from 22% to 19%.

March 4, 2015, the central bank raised the discount rate from 19.5% to 30% and many times retained it at 30%.

August 28, 2015, the regulator decreased the discount rate to 27% and to 22% on September 25, 2015.

The National Bank reduced the discount rate from 22% to 19% on April 22, 2016, on May 27, 2016 the NBU brought it down to 18%; and to 16.5% on June 24, 2016.

July 29, 2016, the National Bank lowered the discount rate from 16.5% to 15.5% and to 15% on September 16, 2016.

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