The Central bank leaves prime rate unchanged at 17.0%

UKRAINE - In Brief 12 Apr 2018 by Dmytro Boyarchuk
Today the Board of the Central bank decided to leave prime rate unchanged at 17.0%. The decision was approved despite March inflation sped up to +1.1% m/m (+0.9% m/m in February) and despite no progress with the IMF. This decision might look a bit counter logical amid inflation speed up but in essence it was predictable. Firstly, CPI growth is driven by foods’ inflation. Everyone expects new crops to ease inflation pressure soon. Increasing prime rate, when potential inflation easing is so close, does not make much sense. Secondly, the NBU is concerned with inflow of ‘hot money’ from abroad attracted by high T-bills rates. This point was mentioned explicitly at the NBU’s press-release. Against this backdrop monetary authorities were reluctant to add more incentives for ‘hot money’. Next review of the prime rate is scheduled for May 24. At that point we will have better picture on agro-sector performance. If positive expectations about crops come true we should anticipate prime rate staying flat, we believe. The Central bank keeps CPI forecast unchanged at +8.9% ytd for 2018.

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