NBU retains inflation forecast for 2019-2021, improves economic growth forecast

The central bank stated this in its quarterly inflation report for October 2019, according to the NBU press service.

"Inflation will fall to 6.3% by the end of the current year and come to the target range (5% ± 1 p.p.) in early 2020 and reach the mid-term target of 5% at the end of 2020. At the same time, Ukraine's economy will grow by 3.5- 4% in 2019-2021," reads the report.

The NBU noted that inflation forecast remained unchanged compared with the July projections.

According to the report, core inflation is expected to slow down to 3.7–3.8% in 2020-2021. An increase in prices for raw food will also be moderate (within the range of 3-4%) if there are no significant supply shocks. At the same time, regulated prices will grow at a relatively high rate (around 10%) due to further bringing excise duty rates on tobacco and alcohol in line with the European levels.

At the same time, the National Bank improved its forecast for Ukraine’s economic development in 2019-2021. According to the baseline scenario, Ukraine's economy will grow by 3.5% during the current and the following years (3.0% and 3.2%, respectively, according to the July forecast) and accelerate to 4.0% in 2021 (3.7% according to the July forecast). Also, a record harvest of grain, sustained domestic demand and a decline in energy costs will compensate the impact of a slowdown in the global economy and world trade and less favorable price conditions for Ukrainian exporters.

The NBU forecast scenario, like in July, projects a further reduction in the interest rate to 8% by the end of 2021, if there is steadily decline in inflation up to the target of 5%. At the same time, the current forecast is based on a slightly lower key rate trajectory in the coming quarters, compared to July, considering more significant decline in October.

As Ukrinform reported, the Cabinet of Ministers on October 23 approved the revised key economic and social development indicators of Ukraine for 2020-2022 under two possible scenarios. The first scenario implies a gradual acceleration of economic growth, while the second scenario envisages the successful implementation of reforms and associated surge in investment activity.

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