Prime rate holds at 13.0%; NBU signals readiness for potential rate hike

UKRAINE - In Brief 01 Nov 2024 by Dmytro Boyarchuk
On October 31st, the NBU Board, as anticipated, kept the prime rate steady at 13.0% for the third consecutive time. With inflation accelerating (+1.5% m/m and +8.6% y/y in September) and the challenges of a third winter under missile and drone strikes, the NBU has little choice but to remain in a "wait-and-see" mode for now. The outlook seems to be shifting, however, as the NBU has hinted at a possible rate increase and expressed its readiness to use all available tools if pro-inflationary risks materialize. For now, the NBU projects (though this is non-binding) that the 13% prime rate may hold until mid-2025. In its press release, the NBU acknowledged that inflation is progressing faster than initially anticipated, revising its CPI forecast for 2024 to 9.7% YTD from a previous 8.5%. Concurrently, it improved the GDP forecast for 2024 to 4.0%, up from 3.7%, owing to improved energy supply conditions in recent months. Additionally, with greater certainty surrounding external support due to the newly established ERA program, the NBU has revised its gross reserves estimates to $43.6 billion by the end of 2024 and $41.0 billion by the end of 2025, up from previous estimates of $41.2 billion and $37.3 billion, respectively.

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