The NBU leaves prime rate unchanged at 7.5% despite soaring inflation

UKRAINE - In Brief 17 Jun 2021 by Dmytro Boyarchuk
The NBU Board decided to leave prime rate unchanged at 7.5% despite dramatic inflation speed up (in May CPI went up by 9.5% y/y and PPI surged to +33.1% y/y). The decision went in line with our reading of the NBU policy though we see this decision as a mistake. Press-release of the NBU tells about “wrapping up of some anti-crisis monetary instruments” as a response to booming inflation. However, in essence, the NBU Governor hopes new grain crops and recent maneuver with the hryvnia strengthening should curb inflationary trend already by the end of the year. We should make it clear, in few weeks we will be ‘celebrating’ a year of brutal replacement of the NBU Governor and a year without the IMF funding. For the new NBU Governor Kyrylo Shevchenko that might be a political suicide to make one more prime rate increase on the days everyone strikes a balance on his first year at the Central bank. That’s why we have prime rate at 7.5% with inflation +9.5%. The next meeting of the Board will be in a month (on July 22, 2021) and by those days we will have first info from the fields about crops 2021. I would say news on grain crops will be the main determinant for prime rate move in July.

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