Ukraine’s central bank to continue raising interest rate to keep inflation in check
Ukraine’s central bank, the National Bank of Ukraine or NBU, expects to keep raising its key interest rate next year in order to achieve its 5 percent inflation rate goal, the bank told the press on Dec. 20.
The central bank’s leadership believe that a tighter monetary policy will likely have to be pursued next year in order to hit the inflation target, according to a post on the NBU’s website.
Seven out of ten members of the bank’s Monetary Policy Committee favored raising the interest rate to 9 percent during their latest meeting, with two of them considering an even greater hike, to 9.5 percent.
Global energy prices are likely to remain high for the foreseeable future, causing additional inflationary pressure. Meanwhile, agricultural yields are expected to be rather low next year, introducing an additional drag on Ukraine’s economy in the second half of 2022.
However, an overly tight monetary policy risks plunging the sluggish post-COVID Ukrainian economy into recession.
The other three members of NBU’s Monetary Policy Committee suggested raising the interest rate to 9.5 percent immediately. Any hesitation to do so would jeopardize inflation targeting for 2022, these members said.
Overall, the committee agrees that some kind of a tighter monetary policy is going to be necessary to bring inflation down to 5 percent next year.
NBU expects annual price inflation rate for 2021 to be at 10 percent, with a GPD growth rate of 3 percent.
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