Ukraine Monetary Policy

Ukraine

Ukraine: Central Bank cuts interest rate from 15-year high, reviews monetary policy strategy

August 28, 2015

At its 27 August Monetary Policy meeting, the National Bank of Ukraine (NBU) decided to cut the discount rate to 27.00%. The discount rate had been at a 15-year high of 30.00% since March.

In its accompanying statement, the Central Bank commented that the tight monetary policy pursued over the past six months has helped promote exchange rate stability and contributed to an easing in inflationary pressures. Moreover, the improvement in the foreign exchange market and inflationary outlook have led to the inflow of deposits to the banking system. The Bank added that inflationary pressures are likely to continue to decline as consumer demand recovers and the effects of housing and utilities price increases fade. Against this backdrop, the Central Bank decided to ease the monetary policy stance and reduce the discount rate from its historically high level. However, the Bank reiterated that monetary policy will still remain rather tight to shield the economy from external shocks and support falling inflation.

Following the monetary policy meeting, on 28 August the NBU announced that it has reviewed a blueprint for future monetary policy strategy. The Bank set a clear timeframe to adopt an inflation targeting regime, planning to finish the transition by the end of 2016. In addition, the Bank set future inflation targets. The NBU aims to contain inflation within a three-percentage-point band around 12% for 2016 and lower the target gradually to a tighter one-percentage-point band around 5% by 2019.

FocusEconomics Consensus Forecast panelists expect an average forecast of 21.05% for the NBU’s discount rate this year. For 2016, panelists expect the discount rate to fall to 14.67%.


Author: Angela Bouzanis, Senior Economist

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