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National Bank of Ukraine left the discount rate unchanged

The Board of the National Bank of Ukraine decided to leave discount rate at 22% per annum. Decision of the Board of keeping restrained monetary policy corresponds with the mandate of the National Bank of ensuring price stability. It is due to the need to ease the possible negative impact of external economic factors on the prices and support for deceleration of inflation up to 12% as of the end of 2016.

Inflationary dynamics in November meets as a whole the expectations of the National Bank. Consumer inflation in annual terms (46.6%) remained almost within the frames of the previous month. However, core inflation continued to decline – up to 37.9% compared with 40.1% in the month earlier. The above mentioned shows that the disinflation trend remains, the fundamental factor of this are the domestic demand weakness and restrained monetary policy.

The National Bank expects this trend to continue. Depressed consumer demand continues to identify downward inflationary dynamics. The low energy recourses cost on the world markets also contributes to it.

Despite these expectations, the Board of the National Bank is aware of the present risks of the pressure increase on the prices. The main source of this pressure is that demand for Ukrainian exports remains low. The risks also are the rising the discount rate launched by the US Federal Reserve for the first time since 2006; as well as the devaluation of countries – trade partners’ currencies. In the coming months the volatility in the exchange rate observed in October-November 2015 may also reflect on inflation with some delay. Another factor of inflation escalation is the possible increase of excise taxes on alcohol and tobacco.

Given the mentioned factors and adhering to its mandate of price stability, the National Bank deems necessary to maintain current monetary conditions primarily to restrain inflationary expectations. This decision will also contribute to the increase of savings on bank deposits.

In the future, provided that the disinflationary trend remains, inflationary expectations improve and risks are mitigated, the National Bank may resume the gradual easing of monetary policy.

Decision on the discount rate change is approved by the National Bank of Ukraine Resolution # 894 "On regulation of the currency market" on 17 December, 2015.

The Board of the National Bank of Ukraine has also decided starting from 10 January, 2016 to stop crediting cash balances in the bank cash departments in national currency in settle for mandatory reserve requirement. The current ratio today allows banks to credit 75% of cash in the bank cash department in local currency to satisfy its mandatory reserves.

In making this decision, the Board came from the fact that systematic measures to clean up the banking system contributed to strengthening its stability and liquidity. As of 17 December, 2015 the funds volume on bank correspondent accounts increased by 25% since the beginning of the year - up to UAH 33.9 bn. At the same time the volume of temporary free bank funds, invested by the banks in deposit certificates of the National Bank increased by 3.4 times since the beginning of the year - up to UAH 66 bn. This allows to gradually abandoning the temporary measures of the banking system support, which were used in acute financial situation and moving on to the standard principles of mechanism of compulsory provisions making.

The decision on statutory provisions is approved by the Board of the National Bank of Ukraine Resolution # 893 on 17 December, 2015 "On Amendments to the Resolution of the National Bank of Ukraine of 18 December, 2014  #820".

The next meeting of the Board of the National Bank of Ukraine on monetary policy will take place on 28 January, 2016 according to the approved schedule.

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