Ukraine: Central Bank cuts key policy rate to boost recovery
May 25, 2017
The National Bank of Ukraine (NBU) decided to cut the key policy rate from 13.00% to 12.50% at its 25 May monetary policy meeting. The decision follows a 100 basis point cut at April’s meeting and signals the continuation of the Bank’s loosening cycle.
The move was largely due to inflation coming in below expectations due to subdued economic activity combined with a waning base effect due to a surge in natural gas tariffs last April. Furthermore, favorable developments in the exchange market, namely a substantial windfall of foreign exchange revenues from agricultural exports, have led to a further appreciation in the hryvnia, keeping inflationary pressures at bay. Consequently, the NBU stated that inflation should meet its target of 8.0% plus/minus 2.0 percentage points in 2017.
The Bank pointed to a continuation of its easing cycle in the coming months to support the recovery of economic activity, as inflationary pressures subside. Lower interest rates should help to stimulate growth, which is expected to remain steady this year. The next policy meeting is scheduled for 6 July 2017.
Author: Nihad Ahmed, Economist