The National Bank of Ukraine (NBU) has decided to cut its key policy rate again to 20% per annum from 22% per annum, effective September 15, in line with market expectations.
“Taking into account the balance of risks, the rapid decline in inflation and the ability to maintain exchange rate stability, the NBU Board has decided to cut the key policy rate to 20% (…) Further slowdown in inflation and the NBU’s ability to ensure exchange rate stability allow the NBU to continue the cycle of rate cuts while maintaining sufficient attractiveness of hryvnia savings. Such a step will support economic recovery and at the same time does not pose a threat to macrofinancial stability,” the central bank said on its website on Thursday.
The NBU noted that price dynamics were better than the NBU expected, primarily due to an increase in food supply, in particular, good harvests contributed to lower prices for cereals, flour, vegetables and some fruits.
“At the same time, the decline in core inflation (to 10% yoy in August) was close to the NBU’s July forecast. The NBU’s measures to ensure the attractiveness of hryvnia assets and the stability of the foreign exchange market played an important role in easing underlying price pressures. In particular, they contributed to further improvement of exchange rate and inflation expectations,” the central bank added.
It is noted that the general downward trend in inflation will continue, but the potential for a rapid slowdown is almost exhausted.
“On the one hand, better harvests will limit price growth in the coming months. The impact of fixing certain tariffs for housing and communal services will also remain,” the NBU explained.
The NBU will continue to ensure the stability of the foreign exchange market to keep exchange rate and inflation expectations under control, which will contribute to a further decline in
On the other hand, the pressure on business costs will be significant due to both war-related losses and rising electricity and fuel prices, which may restrain the slowdown in inflation, the NBU added.
In the future, the NBU expects to continue the cycle of key policy rate cuts, the implementation of which will be consistent with the need to maintain the attractiveness of hryvnia assets as a prerequisite for the stability of the foreign exchange market and a steady decline in inflation.
