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NBU boosts key rate by 200 basis points
Journal Staff Report

KIEV, Jan. 8 The National Bank of Ukraine steeply hiked a key interest rate from early January in reaction to reports showing the countrys 2007 consumer inflation had reached the highest level in the past seven years.

The NBU hiked the discount rate, the rate at which it lends money to commercial banks, to 10% from 8%, citing financial market trends and fears of high inflation.

But the extent of the hike - at 2 full percentage points or 200 basis points - is remarkable, highlighting an extremely high level of concern at the central bank with the quickly rising inflation in Ukraine.

The move comes as the State Statistics Committee reported consumer prices growing 16.6% in 2007, worse than the most pessimistic forecast cited by opposition leaders.

The 2007 inflation is the highest consumer price increase registered since 2000, when the committee reported inflation at 25.8%.

The government of former Prime Minister Viktor Yanukovych, which had originally forecast inflation at 7.5% in 2007, was forced to revise the figure upwards later in the year to between 10% and 12%. A pessimistic forecast cited by opposition leaders in early November 2007 had put the 2007 inflation figure at between 15% and 16%.

But the released report goes beyond these worst expectations and will probably keep pressure on the central bank for further steps, including the possibility of another interest rate hike, later this year, analysts said.

It also puts mounting pressure on the government of Prime Minister Yulia Tymoshenko, who replaced Yanukovych last month, for taking adequate steps to bring in price stability.

The previous government has left an unprecedented level of inflation, Tymoshenko said in comment released last week. We have to urgently stop inflationary processes.

The Tymoshenko government pledged to reduce inflation to below 10% in 2008, but Volodymyr Stelmakh, the governor of the NBU, said last month he hadnt yet seen signs that would suggest lower inflation in 2008.

Ukraine experienced monthly inflation at 2.1% in December 2007, down from 2.2% in November 2007 and 2.9% in October 2007, according to the State Statistics Committee.

Food prices led the increase in 2007, growing a whopping 22.9% between December 2007 and December 2006, while prices charged for services increased 12% and manufactured good prices grew 6%, according to the committee.

The rate hike by the NBU ends a period of 19 months, starting from June 2006, of interest rate reductions, to 8% from 9.5%. The last time the NBU had hiked the rate was in April 2005, when the rate was increased to 9.5% from 9%. (tl/ez)




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Currencies (in hryvnias)
  15.12.2017 prev
USD 27.41 27.27
RUR 0.467 0.461
EUR 32.47 32.00

Stock Market
  15.12.2017 prev
PFTS 306.5 306.5
source: PFTS

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