The NBU Monetary Policy Committee: two members voted for a prime rate increase

UKRAINE - In Brief 01 Feb 2021 by Dmytro Boyarchuk

---

The NBU released the summary of the Monetary Policy Committee discussion on the prime rate decision. As we see from the summary all members of the Committee perfectly recognize that inflation is already above 6% prime rate. However, the majority of the members are treating the inflation tendency as temporary and claim that a prime rate change will not have an impact on consumer inflation dynamics, i.e., there is no reason for a prime rate increase. In contrast, cheaper loans will help the economy to revive after the January lockdown. This rhetoric is in line with our understanding of the "inner mood" at the NBU after the change of the governor. None is eager to say anything against the "one voice" policy of the new Head of the NBU Kyrylo Shevchenko, who is targeting lower interest rates. At the same time, we know from the summary that two members of the Committee stated openly that a prime rate increase is inevitable, and it’s better to increase the prime rate promptly to signal monetary policy consistency. My guess us that the two who stood against the official priorities of Kyrylo Shevchenko (lower interest rates) are the usual suspects, Dmytro Sologub and Kateryna Rozhkova. Neither Sologub nor Rozhkova have any prospects at the NBU under Shevchenko's rule and they feel free to deliver their thoughts openly. Given that the new governor is keeping lower rates as his main priority, we expect the NBU Board to preserve the 6% prime rate as long as possible. For now, we expect the prime rate to be revised only if CPI speeds up much above monetary authorities' expectations (roughly above 8%).