Ukraine Monetary Policy


Ukraine: Central Bank keeps interest rate unchanged at 15-year high amid signs of improvement

July 1, 2015

At its 24-25 June Monetary Policy meeting, the National Bank of Ukraine (NBU) decided to leave the discount rate unchanged at 30.0%. As a result, the discount rate remains at the highest level since 2000.

In its accompanying statement, the Central Bank pointed out that there has been stability in the money market and that the official exchange rate of the hryvnia has strengthened since April. The Bank added that these improvements have led to increased confidence and the return of deposits to the banking system.

Regarding prices, the Bank stated that annual inflation decelerated from 60.9% in April to 58.4% in May. The Bank explained that the strengthening of the exchange rate and less fluctuation in the forex market contributed to containing price growth. Looking forward, the Bank expects inflation to continue to decelerate amid increased stability in financial markets and weak domestic demand.

Concerning Ukraine’s economy, members of the monetary policy meeting projected that growth will start to recover in the third quarter, “driven primarily by net export growth and the utilization of spare capacity.” The Bank’s expectations for a return to growth in 2016 are based on the assumption of a sustainable ceasefire, recovery of business in the Donetsk and Luhansk regions, ongoing currency depreciation, and fulfillment of commitments to international creditors.

Against this backdrop, the Central Bank decided to keep the discount rate at the historically high level of 30.0% to promote more positive developments and guide inflation on a downward path. Looking forward, the Central Bank stated that it may loosen monetary policy in the future if inflation risks subside. The Bank also decided to streamline existing practices designed to sterilize excess liquidity in the banking system.

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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Ukraine Monetary Policy Chart

Ukraine Monetary Policy June 2015

Note: NBU discount rate in %.
Source: National Bank of Ukraine (NBU).

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