The NBU keeps prime rate flat amid concerns on EM currencies

UKRAINE - In Brief 25 May 2018 by Dmytro Boyarchuk
On May 24 the NBU left prime rate unchanged at 17.0%. Easing inflation and hryvnia stability are the main reasons behind this decision. The press-release also mentions substantial easing of May inflation according to the NBU estimates. The NBU has provisional data on inflation and we should treat their CPI estimate seriously. This decision would look absolutely unremarkable unless growing concerns on EM currencies and continued delay with the IMF program. Indeed it might look rather strange. Over the last month EM currencies noticeably depreciated after Fed rate increase. In contrast hryvnia strengthened by 0.1% (since April 20). Hypothetically this layout promises depreciation prospects for national currencies of a small open economy especially in light of growing risks on the IMF program. However, so far we do not see any signals on horizon that hryvnia might start weakening anytime soon. Not many investors can start withdrawing capital, foreign currency restrictions remain on place, and exports proceeds stay strong. Against this backdrop it was of interest to learn that the NBU also has little concerns on potential hryvnia volatility. Next review is scheduled for July 12. By that date we will know for sure whether we have IMF funding this year or not.

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