The National Bank of Ukraine (NBU) has kept the key policy rate at 25% as expected, the Bank stated in a press release on June 15. (chart)

“This will help maintain the attractiveness of hryvnia-denominated instruments, preserve the sustainability of the FX market and reduce inflation. Combined, these results will pave the way for the further gradual easing of FX restrictions,” the NBU wrote.

The bank also noted that inflation had dropped to 15.3% year on year in May, with consumer price growth declining “faster than expected”. In addition to the 25% key policy rate, the drop in inflation was due to high food and fuel supply, a stronger hryvnia cash exchange rate and improved exchange rate and inflation expectations.

However, core inflation declined to only 15.6% y/y in May, matching the NBU’s forecast. This shows that war-related costs incurred by businesses are further transferred to the prices of goods and services, the NBU explained.

“The NBU expects that the easing of inflation will continue, though at a more moderate pace,” the bank added.

Inflation dropped to 17.9% in April and the NBU believes inflation will drop to 14.6% this year, a revision of its previous prediction of 18.7% in December.

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.