Inflation in Ukraine could grow to 3-4% in 2013, says EBRD senior economist
The European Bank for Reconstruction and Development (EBRD) anticipates that inflation in Ukraine in 2013 will grow due to a rise in tariffs for energy and an increase in the flexibility of the exchange rate, Senior Economist for Eastern Europe at EBRD, Alex Pivovarsky has told Interfax-Ukraine.
"We expect that inflation will slightly grow – to the level of several percentage notches. We think that it will be 3-4% on average mainly due to the increase in tariffs," he said.
Commenting on the increase in the flexibility of the exchange rate, he said that this more modern policy would have been more beneficial for Ukraine, as confirmed by Russia's experience. He said that a slight devaluation could be seen in Ukraine, as the external environment today is not very good for the country, which in the market conditions creates pressure on the hryvnia exchange rate. He said that EBRD does not present the hryvnia exchange rate forecast.
Pivovarsky added that inflation also depends on international factors, such as prices of resources and food.
"I think that today's situation when inflation is negative is not good. It's good that inflation was stopped. This also is evidence that the monetary policy is very tough, and this is seen in the absence of crediting in the banking system," the expert said.
He said that until summer a slight stir up was seen, and when the external environment worsened, the pressure on the exchange rate started – the policy of the tough retaining of the exchange rate thanks to high rates and other methods was commenced.
"This has resulted to the fact that the banking system again stopped," he said.
The economist also said that the danger of a sharp acceleration of inflation and a return to two-digit figures was very small.
"Until the monetary policy is very tough, while the fiscal policy is less tough than the IMF would like to see. If the fiscal policy remains unchanged, while the monetary policy will be more flexible, it is likely that inflation will slightly grow, as the exchange rate will start fluctuating more," he said.
Pivovarsky said that the National Bank of Ukraine (NBU) could conduct the tough monetary policy and retain the exchange rate for another year, although this increases the likelihood of crisis in the future, as the reserves are being lost, the economic base is not resumed, while investment and trust of the public are falling.
As reported, deflation in Ukraine in 2012 came to 0.2%. In 2011, inflation in the country slowed to 4.6% compared to 9.1% in 2010.
The EBRD in January 2013 downgraded its forecast for the Ukrainian economy growth by 1%, from 2.5% projected in October 2012.
The national budget for 2013 is built on the GDP growth forecast of 3.4% and inflation of 4.8%.