The National Bank of Ukraine (NBU) has cut the monetary policy rate to 17.5% from 18%, effective from April 26, NBU governor Yakiv Smolii said at a briefing.
"The board of the National Bank decided to lower the refinancing rate to 17.5% per annum from April 26. Currently, a steady downward trend in inflation towards the 5% target allows the National Bank to begin the cycle of reducing the refinancing rate," he said.
This was the first rate cut since July 2018 when the NBU increased rates to head off rising inflation.
The NBU has shown its independence from the government by raising rates in the run up to Ukraine’s presidential election in April, despite the negative impact rate hikes have on growth.
Inflation rose in the second half of 2018 to peak at 10% in November, but inflation has passed its peak and has fallen steadily to finish March at 8.6%.
The NBU expects that inflation in Ukraine will drop to 7% by the end of 2019 and 6.7% by the end of 2020, but will remain above the NBU target.
Morgan Stanley experts believe that in combination with tighter financial conditions, this will mean that real rates will remain high, while the refinancing rate will decrease only to 16% by the end of 2019 and 14% by the end of 2020.