On April 22-23, 2015, the regular meeting of the Monetary Policy Committee of the National Bank of Ukraine (hereinafter – the Committee) was held, at which the decision was taken to recommend the Board of the National Bank of Ukraine keep the discount rate unchanged at its current level of 30%. During the meeting, the Committee members heard reports by NBU experts on the macroeconomic situation, inflation developments, recent money market developments and risks to the hryvnia's stability. In the course of discussions over the presentations delivered by NBU experts, the Committee members expressed their opinions and positions on the issues in question.
It was pointed out that a spike in inflation in March (the year-on-year growth of the consumer price index reached 45.8%) was triggered by the substantial hryvnia exchange rate depreciation in late February 2015, and feverish consumer demand fueled by worsening expectations.
However, a package of measures put in place by the National Bank, including raising interest rates and tightening administrative restrictions, enabled it not only to stabilize the situation in the forex market, but also to strengthen the domestic currency. The UAH/USD exchange rate stayed at the value of 21 – 23 hryvnias per USD 1 throughout most of March and April, enabling the National Bank of Ukraine to purchase foreign exchange to replenish the international reserves.
Over the next months, a number of factors working in different directions will influence the future path of inflation. Scheduled increases in administered prices and utility tariffs and a certain delay in the pass-through of price increases will push up consumer prices further. March's indicators point to heightened risks of inflation rising above projections by end-2015.
At the same time, as the impact of exchange rate depreciation dies out and increases in administered prices and utility tariffs slow down, tight monetary and fiscal policy, elimination of inefficient energy subsidies will contain price growth. This will primarily hold back core inflation.
Further efforts to sustain stability in the foreign exchange market, which will help dispel adverse inflation and depreciation expectations, are crucial for putting inflation on a downward path.
In view of the above, the Committee members concurred in the expediency of keeping the discount rate at its current level in an effort to reinforce positive trends in the money market. The Committee members expect risks to the stability of domestic currency mitigate in the short run in the absence of external shocks, thus enabling the National Bank of Ukraine to ease the monetary policy.
The next meeting of the Monetary Policy Committee will take place on May 27-28, 2015.