Belated prime rate increase: up to 8.0%

UKRAINE - In Brief 22 Jul 2021 by Dmytro Boyarchuk
The NBU Board increased primed rate by 0.5 ppt up to 8.0%. That happened despite monthly inflation slowed down to +0.2% m/m (+9.5% y/y) in June from +1.3% m/m (+9.5% y/y) in the prior month. From the press-release it’s not clear why the NBU woke up so late, not a month ago. But as we see, the monetary authorities currently are talking about faster inflation (the NBU revised CPI forecast up to 9.6% in 2021 from 8.0%, estimated previously) and raise concerns on stronger inflation globally under pressure of monetary incentives worldwide. What’s more, the press-releases mentions 8.5% as likely next level for prime rate increase amid heated up inflation trends. In fact, the decision is correct but quite belated, I believe. Probably, this change in mood of the NBU is somehow related to the talks about potential dismissal of the NBU Governor Kyrylo Shevchenko. But I do not have clue how the revised prime rate might strengthen positions of the NBU Governor. The next meeting of the Board will be on September 9, 2021. Since the NBU gave up defending its relaxed approach a new prime rate increase is very likely.

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