Four out of 10 members of the NBU Monetary Policy Committee (MPC) have advocated cutting the key policy rate by a more radical 2 percentage points (pp), to 13.5% instead of the 1.5 pp cut, according to the results of a meeting of the NBU MPC held on December 11.

According to the minutes of the meeting posted on the website of the central bank on Monday, six of the MPC members offered to cut the key policy rate by 1.5 pp, to 14.0%. Not only will a cut that size support economic growth, but also it will contribute to reducing the cost of hryvnia loans, the MPC members opined. However, underlying inflationary pressures from rising consumer demand and labor costs persist, the MPC members emphasized. Another risk that was brought up during the MPC meeting was the growth in global prices for certain foods. This price growth may eventually impede the improvement in inflation expectations.

Threats to macrofinancial stability may intensify as a result of court rulings and unrelenting pressure on the NBU, several MPC members emphasized. Despite the considerable progress of the IMF negotiations, specifically the agreements the experts on either side have been able to reach with regard to the program, uncertainty remains over the speed of the implementation of the requirements Ukraine must meet before the International Monetary Fund (IMF) Board can green-light the program. In terms of raising confidence in the NBU's monetary policy, a situation where inflation is below the target range is more acceptable than when it exceeds it, the MPC members pointed out.

According to one of the MPC members, who spoke with confidence, cutting the key policy rate by 1.5 pp is sufficient, as the economy will also be stimulated by the next steps in currency liberalization and by setting the reserve requirement rate for hryvnia deposits to zero while increasing this rate for FX deposits.

Four of the MPC members advocated cutting the key policy rate by a more radical 2 pp, to 13.5%. They stressed the need for a more aggressive response to lower inflationary pressures and the long-term strengthening of the hryvnia. The deeper key policy rate cut will also speed up the reduction in the cost of credit resources in the economy and help economic growth.