NBU's decision to sharply increase refinancing rate threatens to slow economic growth – NBU Council head

The decision of the National Bank of Ukraine (NBU) to increase refinancing rate from 14.5% to 16% could create conditions for slowdown of the pace of growth of Ukraine's GDP, Head of the NBU Council Bohdan Danylyshyn has said.

"An attempt of the NBU to retain inflation via the new increase in refinancing rate could result in negative consequences, including the most dangerous: the slowdown of GDP growth due to a fall in demand of companies of the real economic sector on loans, growth of consumers prices due to the transmission of the increase of interest expenses on loans into wholesale and retail prices," he wrote on his Facebook page.

Danylyshyn said that it is likely that the economic nature of inflation in Ukraine shows that this is inflation of supply and expenses, not inflation of demand. Most factors of consumer price growth are beyond the influence of the NBU.

"Consumer inflation is largely linked to supply factors, in particular the rise in price of raw food products and an increase in production costs, including due to higher prices and tariffs, which are influenced by the state," he said.

Thus, the head of the NBU Council believes that the decision of the central bank's board to raise the refinancing rate would have mainly negative consequences for economic growth and price stability.