NBU forecasting 2022 inflation at slightly over 30%, reduction to 20.7% in 2023

MOSCOW. July 21 (Interfax) - The National Bank of Ukraine (NBU) has adjusted its 2022 inflation forecast to slightly over 30% from the over 20% in its earlier estimates and expects it to return to the 5% target in 2025, Ukrainian media said on Thursday, citing a statement for the regulator.

"Inflation pressures will persist: inflation will exceed 30% yoy as of the end of 2022. It will slow considerably in the next years, albeit remaining much above the NBU's target of 5%," the NBU said.

Taking into account the consequences of the crisis and the large contribution of the increase in administered prices, inflation will drop to 20.7% in 2023, and 9.4% in 2024.

The NBU's baseline scenario contains a number of assumptions, including the assumptions that in 2023 logistics will recover, businesses will face lower risks, and harvests will increase gradually. This would have a positive impact on expectations and weaken the inflationary effect of supply shocks.

A decline in global inflation and the NBU's tight monetary policy will additionally foster disinflation, the regulator also said.

On the other hand, persistently high energy prices will be an obstacle to faster disinflation and will require a review of utility tariffs in order to balance state finances.

As reported, in 2021, inflation in Ukraine rose to 10% from 5% in 2020 and 4.1% in 2019, and baseline inflation - to 7.9% compared to 4.5% a year earlier.

At the end of H1 2022, inflation in annual terms rose to 21.5% from 18% in May, 16.4% in April, 13.7% in March, 10.7% in February and 10% in January.

Meanwhile, Ukrainian media quoted NBU Governor Kyrylo Shevchenko as saying at a press briefing that after February 24, the NBU directly financed the state budget by buying 225 billion hryvni in military bonds and expects to keep such transactions within the limit of 400 billion hryvni this year.

"The government's and our joint position remains that, provided that the volume is limited by 400 billion hryvni, which means regular financing in the amount of 30 billion hryvni a month by the end of the year, the influence of money issuance on inflation and devaluation indicators will remain under control," he said.

Shevchenko also mentioned other important sources of financing, such as commercial borrowing on the domestic market, international aid, and measures to increase budget revenues and restrict expenditures.

As reported earlier, the NBU financed the budget in the amount of 105 billion hryvni in June.