The National Bank of Ukraine (NBU) should maintain its current interest rate policy or consider tightening it in light of the active inflation growth, according to Trevor Lessard, the deputy head of the International Monetary Fund (IMF) mission in Ukraine.
"If you recall, the head of the NBU and his deputy recently mentioned that about a year ago they were contemplating the pace of easing monetary policy. Now, given the new inflation indicators, there are far fewer options for considering easing; it is more reasonable to look at maintaining the policy or potentially increasing its strictness," he stated in an interview with Interfax-Ukraine in Washington.
According to Lessard, there is significant liquidity in the system, and considering the fact that real wages have grown by about 20% year-on-year, "it is not surprising that inflation is also on the rise."
"The NBU has a mandate for price stability, so they cannot simply continue to follow the plan they had six months ago. They won't be able to do that either. This is a central bank with great potential and strong leadership; they have real-time indicators and can adapt their monetary policy to current conditions, guided by data," he added.
Lessard noted that the NBU has recently updated its core principles of monetary policy for the medium term.
In his opinion, the National Bank, the Ministry of Finance, and Ukrainian society will have to adapt to the realities of a longer war. "And I think that part of this new reality has manifested itself in the last few months. You have seen the data, just like everyone else. Inflation is rising, it is slightly higher than the NBU initially projected. This is partly due to a very tight labor market, which pushes wages up, and the base effect," Lessard explained.