The NBU lifts policy rate by 0.5 ppt up to 9.0% amid concerns on capital outflow

UKRAINE - In Brief 09 Dec 2021 by Dmytro Boyarchuk

The NBU Board increased policy rate by 0.5 ppt up to 9.0%. The decision was not obvious: in polls analysts split 50/50 with near half of observers (including us) anticipated policy rate to remain unchanged. However, the decision went in line with previous communication of the NBU which articulated that slow disinflation will translate into prime rate increase in December. November consumer inflation indeed was reported slightly higher than the NBU projected (+0.8% m/m and 10.3% y/y) but disinflation trend is clearly on track. Why the NBU decided then to increase policy rate amid easing inflation? The repeated message on concerns of capital outflow amid tensions with Russia coupled with steady Minfin problems with local bonds’ placements – most likely were the key reasons for the step.The NBU claims its readiness for further policy rate increase if pro-inflationary risks come to reality. At this stage we can hardly predict what might happen at the next meeting of the Board (January 20th, 2022). However, at that point budget deficit issue will be not that pressing and, hopefully, we will have more clarity on the story with “Russian offensive”.

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