Ukraine: National Bank of Ukraine unexpectedly resumes easing cycle in March
At its 14 March meeting, the National Bank of Ukraine (NBU) cut rates by 50 basis points to 14.50%. The decision followed January’s hold and continued the NBU’s monetary policy easing cycle, which began in July 2023. The decision caught markets by surprise.
The NBU cut the policy rate on the back of further declines in inflation, stable exchange rate conditions and an improving outlook for foreign financial aid. Regarding inflation, the Bank noted that price pressures were set to remain within the 4.0–6.0% target range in the coming months, rising only slightly in H2. While downside risks to foreign aid inflows remained, recently approved financing from the EU and the IMF lifted the outlook, enabling the Bank to cut rates further.
In its forward guidance, the NBU stated that it would continue to be “prepared to adapt its interest rate policy dynamically in response to changes in the balance of risks to inflation and exchange rate sustainability”. Our panelists expect about 250 basis points of further rate cuts through end-2024. Key factors to watch include foreign aid disbursements, the stability of the hryvnia and the course of the war.
The next monetary policy meeting is scheduled for 25 April.
Andrew Matheny, analyst at Goldman Sachs, expects more rate cuts in 2024:
“Our baseline forecast is for inflation to continue to come in weak this year and for the Hryvnia to gradually depreciate, which would allow [the NBU] to continue the cutting cycle at the same 50bp pace in upcoming meetings, down to +11.5% at year-end (from +12% previously) and a terminal +10% rate.”