NBU should maintain current interest rate policy or tighten it – IMF

The National Bank of Ukraine (NBU) should maintain the current interest rate policy or consider tightening it, given the active growth of inflation, says Trevor Lessard, Deputy Chief of the IMF Mission to Ukraine.

"If you've seen recently, the governor and the deputy governor have kind of mentioned that, roughly a year ago, they were thinking about the pace of loosening monetary policy. Now, given the new inflation numbers, there's much less scope to consider loosening and more appropriate to looking at maintaining policy or potentially tightening," he said in an interview with the Interfax-Ukraine agency in Washington.

"There's also lot of liquidity in the system. I mean, if you have 20% real-wage growth, it's not surprising that inflation is moving up as well. And the NBU has a price stability mandate, so they can't just continue on with the plan that they had six months ago. And there's no way they ever would: this is a central bank with a lot of capacity and good leadership. They have the real-time indicators and can adjust their monetary policy to current conditions, they're data-driven," he said.

"The NBU just put out their new monetary policy guidelines, and they outlined their new framework for how they would operate and that policy is effective now. Practically speaking, the NBU, like the Ministry of Finance and the rest of society, is going to have to adapt to the realities of a longer war," he added.

"And I think part of that new reality has shown up in the last couple of months. You've seen the data, just like everyone else. Inflation is ticking up, it's a little bit higher than the NBU had originally forecast. Some of that uptick has to do with a very tight labor market, which is pushing up wages, and base effects," he explained.