Monetary Policy Committee minutes: the NBU planned to hike policy rate by 2ppt but calmed down eventually

UKRAINE - In Brief 31 Jan 2022 by Dmytro Boyarchuk

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The minutes of Monetary Policy Committee (MPC) meeting revealed a very interesting point. A majority of MPC members supported the idea to hike the policy rate by 2 ppts up to 11% already in January. One member even claimed that a 12% policy rate is a proper level for current uncertainty. The "Russian tension", with non-resident withdrawals and the hryvnia weakening, was the reason for the desperately hawkish mood. However, several members of MPC reasonably noted that such a strong increase would look hysterical for many observers and might work the opposite way the NBU wants to see. So the next day the NBU Board ruled for just a 1 ppt policy rate increase up to 10%. Despite the minutes' demonstrating a strong hawkish sentiment among MPC members, there still is no guarantee that the NBU Board will approve one more policy rate increase in March. For sure, the discussion gave the impression of multiple messages about mounting military risks. Should it happen that tension eases through February, the MPC members might become less nervous. We already see that the FX market is calming down. From the start of January, the hryvnia has lost 6.3% under the pressure of "Russian risk" and the huge budget outlays in December 2021. The national currency even touched UAH29/ USD – a psychologically sensitive level – which created substantial nervousness among Ukrainians. However, over the recent days we see the hryvnia is regaining its position quite fast (UAH 28.47/ USD reported today). We hope the recent communication of Volodymyr Zelenskiy with Western media (on Friday, January 28) will not discourage our western partners and will not create a background for Kremlin aggression – alt...