NBU cuts policy rate to 20%

NBU cuts policy rate to 20%
The Ukrainian inflation rate has been falling / bne IntelliNews
By bne IntelliNews September 19, 2023

The National Bank of Ukraine (NBU) cut the key policy rate by 200bp to 20% at the board meeting held on September 14. (chart)

Andriy Pishniy, the Chairman of the NBU board, said one of the primary drivers behind this rate reduction is the continued deceleration of inflation in Ukraine. In August, annual inflation slowed to 8.6%, a figure below the NBU's initial forecast. While the bank expects this downward trend to persist, it acknowledges that the potential for rapid inflation reduction has nearly reached its limits.

In addition to the positive trajectory of inflation, the NBU's ability to maintain exchange rate stability has played a crucial role in facilitating the rate reduction cycle. By striking a balance between reducing interest rates and sustaining the attractiveness of hryvnia savings, the NBU aims to create a conducive environment for economic growth.

However, the bank remains cognisant of the challenges that Ukraine's businesses face. Significant pressures on business expenses persist, stemming from both war-related losses and the escalating costs of electricity and fuel. These factors may impede the rapid deceleration of inflation, and the NBU acknowledges this in its decision-making process.

Looking ahead, the majority of members within the NBU Monetary Policy Committee anticipate that the discount rate will further decrease to a range of 18-19% by the end of 2023. This gradual reduction aligns with the bank's commitment to fostering economic stability and ensuring that the financial landscape in Ukraine remains conducive to sustainable growth.

The NBU's decision to lower the key policy rate reflects its ongoing dedication to navigating the complex economic challenges faced by Ukraine while simultaneously fostering an environment that encourages investment, savings and economic development.