Ukraine & Hungary: Different monetary policy needs

5 min

In Ukraine, the Central Bank (NBU) raised its key policy interest rate by a larger than expected 150bp to 16.0% last week, following two 100bp hikes in October and December 2017, citing still high inflation and underlying inflation expectations. Consumer prices rose by 13.7% y/y in December (up from 13.6% in November), clearly exceeding the NBU’s inflation target range of 8% ± 2pp. Moreover, core inflation continued to rise to a 20-month high of 9.5% y/y in December. The NBU now expects headline inflation to return to the target in the middle of 2019, broadly in line with our forecast (average 11% in 2018 and 8% in 2019). In Hungary, the Monetary Council (MC) kept its key policy interest rate at 0.9% this week, unchanged since May 2016. Both headline (2.1% y/y) and core inflation (2.6% y/y sa) eased to 5-month lows in December – being in line with the MC’s expectations – despite output being close to potential, a tight labor market and a dynamic rise in wages.