National Bank kept the key policy rate at 15.5% amid risks to inflation and the foreign exchange market

The National Bank of Ukraine kept the key policy rate at 15.5% amid concerns about risks to inflation growth and the stability of the foreign exchange market, the regulator announced on December 11, UNN reports.

The Board of the National Bank of Ukraine decided to keep the key policy rate at 15.5%.

The regulator explained the decision by stating that "against the backdrop of persistent pro-inflationary risks, particularly those related to future international financing," it "is necessary to maintain the attractiveness of hryvnia instruments, the stability of the foreign exchange market, and controlled expectations in order to bring inflation to the 5% target within the policy horizon."

Maintaining the key policy rate at an unchanged level in October, as noted by the National Bank, prevented a decrease in rates on hryvnia instruments. This, as stated, contributed to an increase in the volume of household investments in hryvnia term deposits and government bonds. Interest in hryvnia instruments, according to the report, limited demand for foreign currency and contributed to maintaining a stable situation in the foreign exchange market. "Hryvnia exchange rate fluctuations were two-sided, and exchange rate expectations were controlled. At the same time, a relatively tight monetary policy did not hinder the further development of lending, which is growing at a rate of more than 30% year-on-year," the NBU stated.

"The NBU will flexibly respond to further changes in the distribution of risks to price dynamics," the National Bank emphasized. "In case of persistence or intensification of inflationary risks, particularly due to uncertainty regarding external financing, the NBU will be ready to refrain from easing interest rate policy, and if necessary, take additional measures."

"Instead, a weakening of pro-inflationary risks will allow the NBU to move to a cycle of easing interest rate policy in accordance with the baseline scenario of the October macro-forecast," the regulator reported.

The NBU also listed a number of conclusions:

• inflation is declining somewhat faster than the NBU's forecast, but inflation expectations remain elevated;
• a gradual decrease in inflation is expected in the coming months;
• international assistance is currently sufficient to maintain an adequate level of reserves and non-emission financing of the budget deficit, but uncertainty regarding its future parameters remains;
• the course of the full-scale war remains the main risk to inflation dynamics and economic development.

Ukraine's international reserves grew to $54.7 billion – over 10% increase in November – NBU04.12.25, 22:34 • 3675 views