Thursday, July 30, 2015

Ukraine holds rate to support trend to lower inflation

    The central bank of Ukraine held its benchmark discount rate steady at 30.0 percent to "consolidate  the positive developments in the money market and support the trend to lower inflation," reiterating the reasoning it also used in its June policy statement.
   The National Bank of Ukraine (NBU) added that it expects a further slowdown in inflation as long as the current balance in the money market continues, setting up the conditions for a sustainable reduction in inflation risks and thus monetary easing.
    The NBU raised its rate by 1,600 basis points this year, most recently by 1,050 points in March, and by a total of 2,350 points since April 2014 to protect the value of the hryvnia and curb inflation.
    At today's meeting, the NBU board noted the gradual decrease in inflationary pressures and discussed possible changes in monetary instruments. It did not comment further on what those changes might be.
    Ukraine's inflation rate eased to 57.5 percent in June from 58.4 percent in May and 60.9 percent in April, the highest rate seen since hyperinflation in the mid-1990s when it hit an all-time high of 530.3 percent in September 1995.
    On the interbank and cash segments of the foreign exchange market in July, the central bank said demand for foreign currency was lower than supply, helping fluctuations in the exchange rate against the U.S. dollar stay in a "fairly narrow range."
    The hryvnia depreciated by almost 50 percent against the U.S. dollar last year following the outbreak of armed conflict in Eastern Ukraine and the occupation of the Crimean peninsula by pro-Russian forces.
    But following a cease-fire agreement in late February, rate hikes and administrative measures, the hryvnia has bounced back and stabilized. Today it was trading at 21 to the dollar, down 25 percent this year after hitting a low of 33.7 in late February.

    The National Bank of Ukraine issued the following statement (translation by Google):

"In order to consolidate the positive developments in the money market and support the trend to lower inflation NBU Board decided to leave the discount rate unchanged at 30%. 
The decision was taken at a meeting of the National Bank of Ukraine, focused on monetary policy July 30, 2015.

At the meeting were discussed the macroeconomic situation, the monetary market, the forecast of further development of the situation and possible changes in monetary instruments. It was noted a gradual decrease in inflationary pressure. So in June continued slowdown of consumer inflation - increase in the consumer price index was 0.4% compared to 2.2% in the previous month. The rate of core inflation also slowed to 0.4% in June (compared to 4.6% in April and 1.9% in May). Restraining influence on price dynamics occurred, in particular by improving the balance of the currency market. On the interbank and cash segments of the foreign exchange market in July as in the previous two months, the demand for foreign currency was lower than its supply. Therefore, fluctuations in market rates against the US dollar occurred in a fairly narrow range.

"The positive changes that we see evidence of the effectiveness of stabilizing actions of the National Bank. Now the monetary market balanced and if this balance will remain - we expect a further slowdown in consumer inflation. So the conditions for sustainable reduction of inflation risks, we turn to monetary easing -kredytnoyi policy in the near future ", - commented on the current situation on the money market and the decision of the National Bank of Ukraine, the National Bank of Valery Gontareva."


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