NBU cuts key policy rate from 25% to 22%

NBU cuts key policy rate from 25% to 22%
Ukraine monetary policy rate vs CPI inflation June 2023 / bne IntelliNews
By Dominic Culverwell in Kyiv July 31, 2023

Ukraine’s National Bank (NBU) cut the key policy rate from 25% to 22%, effective from July 28, the NBU stated in a press release on July 27 (chart).

The decision comes following disinflation and the stability observed in the foreign exchange (FX) market conditions, enabling the NBU to start the cycle of key policy rate cuts. The bank expects further disinflation, revising its 2023 inflation prediction from 14.8% to 10.6%.

The decision aims to stimulate growth and invigorate the financial landscape. Consumer inflation, which recorded a staggering 26% year on year at the beginning of the year, has shown a notable slowdown to 12.8% y/y in June. This dramatic deceleration in inflation has surpassed the National Bank's expectations and can be attributed to multiple supply-side factors.

One of the key factors contributing to the moderation of inflation is the saturation witnessed in both food and fuel markets. Additionally, the decline in global energy prices has played a pivotal role in stabilising the overall inflationary pressures.

The central bank raised the key policy rate from 10% to 25% in June last year in the first months of the war to combat the double-digit inflation caused by Russia’s full-scale invasion of Ukraine, which battered the economy. The NBU previously said that the key policy rate would be maintained at 25% until at least the second quarter of 2024.

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