Keeping inflation within the established 6–10% range has failed this year. The real inflation rate is about 14%. This affects hryvnia's exchange rate. Meanwhile, the capital inflow is slow and we have almost no foreign funding.
Reviewing the National Bank's decision to raise policy rate to 16%, we should note that domestic inflation and depreciation of hryvnia, and therefore, a rise of all imported goods prices create inflationary pressure mechanisms. NBU decided to fight this situation with limited access to loans. Limiting access to loans, as per NBU estimations, will cause exporters experiencing difficulties with access to liquidity to sell more foreign currency. Currently, with the exception of mandatory sale, exporters are not willing to sell foreign currency.
However, restricting access to resources will delay economic growth with all ensuing consequences. Therefore, in the current situation, raising policy rate is a rather debatable decision. Given that many of our economic problems are structural in nature and are related to existing structural imbalances, it is unrealistic to resolve these problems just through raising policy rate without the support of broader economic policy measures.
