NBU expects discount rate reduction in Q2 2022

This issue was discussed at a meeting of the NBU’s Monetary Policy Committee, the central bank's press service reports.

“The NBU should be ready for a scenario in which it may have to tighten its monetary policy over the forecast horizon as needed, several of these MPC members emphasized as they assessed the risks. Should external price pressures intensify and inflation expectations worsen, it may be necessary to either increase the key policy rate further or keep it at the current level (8.5%) longer than is projected in the NBU’s July macroeconomic forecast, these MPC members noted. According to this forecast, the regulator expects to start a cycle of key policy rate cuts in Q2 2022,” reads the report.

In addition, MPC members agreed that it is important “to avoid mismatches in inflation expectations”. According to them, with prices for consumer goods and services rising, household expectations can deteriorate rapidly, creating additional price pressures.

“To prevent this from happening, the monetary policy must remain consistent and balanced. Raising the key policy rate to 8.5% in September is the most anticipated step, according to various expert surveys. This decision will thus have a positive impact on inflation,” reads the report.

As reported, the National Bank of Ukraine decided to raise the discount rate to 8.5% on September 9, 2021.

iy