NBU could return to cutting refinancing rate no earlier than spring 2018 - expert

The National Bank of Ukraine (NBU) would be able to again decrease the refinancing rate no earlier than spring 2018, Senior Economist of Alfa-Bank (Ukraine) Oleksiy Blynov has said.

"In the coming months, inflation is unlikely to slow down significantly. Most likely it will stabilize at the current level of slightly below 14% by the end of winter, so the monetary policy will be kept rigid. Most likely, the regulator will be able to return to lowering the refinancing rate no earlier than in spring 2018," he told Interfax-Ukraine on Friday, December 15.

He believes that the system decrease in hryvnia-pegged interest rates may be slowed down.

"The average annual rate of the refinancing rate will be 13.2% per annum. Using inflation expectations and the NBU inflation targeting policy for 2018, the average annual interest rate would be approximately the same. Accordingly, the prospect of further systemic decline in hryvnia interest rates goes to a remote period," he said.

"The new increase in the refinancing rate is a reaction to two phenomena: firstly, the inflation trend still strongly exceeds both the forecast trend of the central bank and its targets. Obviously, compliance with not only the quarterly targets for 2018, but also the inflation targeting at the end of the next year (the target range is 4-8%) is doubtful. For example, our basic inflation forecast is 9.7% for the end of 2018. In relation to these expectations, the NBU's real refinancing rate now exceeds 4% per annum, which sets a strict monetary policy. Secondly, the NBU is working on raising the hryvnia rate to limit the short-term impact of a burst of public spending at the end of the year on the money and foreign exchange markets," the expert said.