NBU: Key policy rate should not prevent inflation from diminishing to the target

This is stated in a report posted on the NBU website following the MPC meeting.

“Six MPC members said that it would be too early to ease monetary policy now, but this option should be revisited in future meetings. The launch of the cycle of key policy rate cuts should be timed in a manner that mitigates the risks that may prevent inflation from diminishing to the target,” reads the report.

They MPC members provided the following arguments to support their view: for inflationary pressure to continue to decrease from the still high level, a sufficiently tight monetary stance is necessary. At this time, the required tightness of monetary policy is best ensured by holding the key policy rate unchanged.

The MPC also agreed that the NBU needs the public to have more confidence in its inflation targets. The main prerequisite for boosting confidence is to conduct a consistent monetary policy, which must remain tight in order to return inflation to declared targets. Also, increasing social spending amid the political uncertainty that surrounds this year’s presidential and parliamentary elections could worsen inflation expectations – something the NBU must factor into its key policy rate decision.

As reported, the Board of the NBU in early March decided to maintain the key policy rate at the level of 18.0% per annum.

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