By KYIV. Sept 14 (Interfax-Ukraine) – The National Bank of Ukraine (NBU) has decided to cut the key policy rate from 22% to 20% effective 15 September 2023, in accordance with market expectations.
” Taking into account the balance of risks, a sharp fall in inflation, and the NBU’s ability to safeguard exchange rate stability, the NBU Board decided to cut the key policy rate, to 20%… The further pullback in inflation and the NBU’s ability to ensure FX market sustainability are making it possible to continue the cycle of key policy rate cuts while maintaining the sufficient attractiveness of hryvnia savings. Such a step will support the economic recovery without posing threats to macrofinancial stability,” the central bank said on its website on Thursday.
The NBU said that price movements came out better than the NBU anticipated, primarily due to an increase in the supply of food products. Specifically, good harvests contributed to a decrease in the prices of cereals, flour, vegetables, and some fruits.
“However, the drop in core inflation (down to 10% yoy in August) was close to the forecast the NBU made in July. The NBU’s measures to keep hryvnia assets attractive and the FX market sustainable played an important role in easing underlying price pressures. Among other things, these measures helped improve exchange-rate and inflation expectations further,” the central bank added.
The overall downtrend in inflation is set to persist, but there is little to no potential for a rapid slowdown in price growth.
“On the one hand, better harvests will continue to restrain price increases in the following months. The impact of the fixing of some utility tariffs will also remain,” the National Bank said.
The NBU is committed to persevere in ensuring the sustainability of the FX market to keep exchange-rate and inflation expectations in check. All of this will contribute to the further easing of inflation.
On the other hand, businesses’ costs will remain under significant pressure to rise because of war-related losses as well as higher prices for electricity and fuel. This factor can restrain the deceleration of inflation, the NBU added.
The cycle of interest rate policy easing the NBU launched in July decreased nominal interest rates in the banking system, as was to be expected. In spite of that, the yields of hryvnia assets remained attractive, thanks to the dramatic fall in inflation and improved expectations.
