The NBU leaves prime rate unchanged at 6%

UKRAINE - In Brief 23 Jul 2020 by Dmytro Boyarchuk

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The NBU Board left prime rate unchanged at 6% today. The decision was made despite new Head of the NBU Kyrylo Shevchenko stated few days ago that the NBU should continue further prime rate cuts for the sake of cheaper loans for economy. At the press-release the NBU mentioned that “This [decision] on the one hand will curb price growth as the economy recovers in 2021–2022, while on the other hand leaving room for further decreasing the cost of credit to one-digit levels.” Also the NBU informed that it has revised its inflation forecast (+4.7% YTD vs. +6.0% YTD, previously), improved current account estimate (4.4% of GDP surplus vs. 1.7% of GDP deficit, estimated previously) and improved gross international reserves estimate ($30 billion vs. $27.2 billion, previously). At the same time the NBU worsened its GDP growth forecast down to -6% from -5% suggested initially. The NBU Board allegedly plans to leave prime rate unchanged till the end of the year. After all previous aggressive communication, the decision came in as a surprise. In fact it’s a logical move, and that is what we would expect under previous management of the NBU. But it’s different to what Kyrylo Shevchenko promised to do. And here we have a question. We have this decision because old management still keeps majority at the Board? Or that was indeed Kyrylo Shevchenko who is trying to show his independence? In my opinion doing the opposite few days after you promised more rate cuts is a very strange way to go. I would say that we still have old management trying to do right things as long as they remain at place. And it’s another signal why we should expect old members of the Board to be removed very soon. ...