ICU Research: MM: NBU's rate unchanged ahead of elections

NBU may start the cycle of lowering the key rate in 2Q19, if it sees political risks declining after presidential elections. The regulator chose to maintain its key policy rate at 18% despite decreasing inflation and the favourable situation in FX market for hryvnia. The combination of increases in social payments and the monetization of utility subsidies ahead of the elections still poses a threat for meeting the inflation target. ICU view: The real interest rate increases as the key rate remains at 18% since September 2018, while inflation gradually diminishes. Such tight monetary policy negatively impacts both lending and economic growth. Yet risks both political and economic look too high for the regulator. Only one out of 10 members of the Monetary Policy Committee voted in favour of lowering the interest rate during the meetings in December and January; the results of the March meeting are yet to be published. We believe the NBU may decide to start the cycle of lowering the interest rates on 25 April or 6 June if the elections outcome decreases political risk rather than amplifies it. June is the more probable date if the increased social payments materially impact the inflation.

• Full name
  The National Bank of Ukraine