Central and Eastern Europe: Accommodating monetary policy

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

Ukraine’s Central Bank lowered its key policy interest rate by 50bp to 16.5% last week as it expects con­tinued disinflation. Headline inflation eased to 8.8% y/y in August. Combined with a stabilized currency (the UAH has gained +11% YTD vs. the USD), this allows for one or two more rate cuts in 2019. Meanwhile, a flash estimate has put Q2 real GDP growth at a strong +4.6% y/y. In Russia, the Central Bank cut its key policy rate by 25bp to 7.0% last week as the decline in inflation has continued (4.3% y/y in August, an eight-month low) while the economy is faltering. Since the impact of new U.S. financial sanctions on Russia has been modest so far, expect at least one more rate cut by year-end. This week, the Monetary Policy Council (MPC) of Poland kept its key policy rate at 1.5%, unchanged since March 2015. CPI inflation edged down to 2.8% y/y in August (flash estimate) from the 81-month high of 2.9% in July, slightly above the MPC’s 2.5% target, while core inflation was 2.2% in July. We expect no rate change for the rest of the year as GDP growth is still robust (forecast at +4.1% for all of 2019).