We expect the NBR to leave the monetary policy rate unchanged at 7.00% at the February 13 Board meeting, in line with market consensus. The press conference may give some indication of when the first rate cut will occur. We maintain our assessment of the first rate cut at the NBR Board of Directors’ May meeting and expect the key rate to be 5.75% at the end of the year (compared to 7.00% now), BCR said in a note to investors on Wednesday.

The bank cut its CPI forecast for the end of 2024 to 4.3% from 4.8%, a revision linked to the government’s decision to extend for two months limits on commercial allowances for some staple food products, as well as slower depreciation of the lei.

BCR analysts forecast inflation to rise to 7.3% in January from 6.6% in December due to the tax changes, with inflation then falling below 7.0% and then gradually falling over the course of the year. “We estimate the core inflation rate at 4.7% at the end of 2024 and keep the inflation forecast at the end of 2025 unchanged at 3.7%, slightly above the NDB’s target range,” the quoted statement added.

In order to avoid the inconsistency of the monetary policy, the chairman of the National Bank of Ukraine ruled out the possibility of discussing the reduction of interest rates until inflation falls significantly and the process of reducing inflation becomes clearly irreversible.

At the same time, he suggested that talks on lowering rates could begin as soon as inflation falls below the policy rate.

“While the last two INS inflation announcements have been below the key interest rate, the expected CPI hike in January and delayed fiscal consolidation are likely to delay rate cut discussions until the May meeting,” BCR economists said.

“Tough monetary policy is justified. “Given risks to inflation, risks from strong wage growth and positive fiscal stimulus from 2024, the key monetary policy rate should not be cut until inflation is firmly on a downward trajectory,” the IMF also said in its latest report.