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NBU’s decision to sharply boost refinancing rate may slow economic growth – NBU Council head

Source : 112 Ukraine

Most factors contributing to the growth of consumer prices are beyond the regulator’s influence.
18:01, 26 January 2018

National Bank of Ukraine

The decision made by the National Bank of Ukraine (NBU) to increase the refinancing rate from 14.5% to 16% might establish conditions for the slowdown of the growth rate of Ukraine’s GDP, Head of the NBU Council Bohdan Danylyshyn has said, Interfax-Ukraine reports.

Related: National Bank raises refinancing rate to 16%

“An attempt by the National Bank of Ukraine to retain inflation through the fresh rise in refinancing rate could lead to negative consequences, including the most dangerous: the slowdown of the GDP growth due to a lower demand for loans from businesses in the real economy, the rise of inflation due to the transfer of the increased interest expenses on loans into wholesale and retail prices,” Danylyshyn wrote on his Facebook page.

Related: National Bank places circa $1 billion of forex reserves under World Bank management

The head of the National Bank Council finds it unlikely that the economic nature of inflation in Ukraine shows that this is inflation of supply and expenses, not the inflation of demand. Most factors contributing to the growth of consumer prices are beyond the regulator’s influence.

Related: National Bank finds 115 illegal currency exchange outlets in 2017

“Consumer inflation is largely tied to supply factors, particularly, the increase in the price of raw food products and higher production costs, including the influence of the increased prices and tariffs, which are influenced by the government,” he explained.

Therefore, Danylyshyn believes that the decision made by the regulator’s board to increase the refinancing rate would have mostly negative consequences for economic growth and price stability.

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