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Ukraine Monetary Policy December 2023

Ukraine: National Bank of Ukraine cuts rates again in December

At its 14 December meeting, the National Bank of Ukraine (NBU) chopped its key policy rate by 100 basis points to 15.00%. The decision followed October’s 400 basis point cut and largely met market expectations.

December’s decision came against a backdrop of declining inflation, improving inflation expectations and a stronger hryvnia. Ample food supply, boosted by a successful harvest, maintained disinflation, while the Bank’s recent modifications to the FX regime and markets’ adaptability to the new policy supported the currency. Meanwhile, the NBU noted that risks to inflation remained tilted to the upside, chiefly due to Russia’s invasion, which the Bank foresees will continue until at least 2025. In addition, concerns have grown over foreign financing amid challenges in securing new EU and U.S. aid packages.

Forward guidance was scarce in December’s communiqué; that said, the Bank stated its upcoming decisions would be based “on the development of inflationary processes, the state of the FX market, how regularly international aid arrives, how sufficient international aid is, how security risks evolve, and other factors”. The majority of our panelists see rates unchanged through end-2024, while several anticipate the monetary policy easing cycle to continue next year.

The next monetary policy meeting is scheduled for 25 January 2024.

Andrew Matheny and Johan Allen, analysts at Goldman Sachs, commented on the outlook:

“Our base case is that headline inflation will continue to be close to the NBU target in 2024 (the NBU expects it to increase) and that the bulk of the international aid that Ukraine has assumed in its budget is likely to arrive, which would enable the NBU to restart its cutting cycle already in Q2.”

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