The National Bank of Ukraine (NBU) may further raise its key policy rate at a meeting in September in case there are inflationary risks, the protocol of a July 11 meeting of the NBU's Monetary Policy Committee (MPC) says.

While the NBU's board at its committee meeting on July 12 decided to raise the key policy rate from 17% to 17.5% as of July 13, most of the committee's members (five out of nine) concurred in the idea to raise the key policy rate by 100 bp up to 18.0%.

"Hiking the rate by 100 bp would be sufficient to eliminate inflationary pressure factors and drive inflation back to the target range in 2019. Moreover, this increase would help build up trust in inflation targets and improve expectations," they said, according to the protocol.

Yet, three MPC members stood for increasing the key policy rate by 50 bp to 17.5%, while one MPC member favored keeping the key policy rate unchanged. To substantiate the position taken, the latter also noted that the impact of labor migration, particularly on wage growth, was a long-term structural factor.

"Therefore, tight monetary policy should not be the only means used to adjust for such effects. On the contrary, given more tight lending conditions, businesses’ productivity growth might not catch up with the pace of wage growth. This might affect competitiveness of Ukrainian producers. In addition, remittances from migrants push the hryvnia exchange rate to strengthen, which partially offsets the inflationary impact of active labor migration," he said.

As was reported, the NBU from July 13 raised its key policy rate to 17.5% to smooth the impact of some factors, like higher domestic demand, in the second half of 2018 and in 2019.