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Ukraine Monetary Policy April 2020

Ukraine: NBU axes key policy rate to over six-year low in April

At its 23 April monetary policy meeting, the National Bank of Ukraine (NBU) decided to slash the key policy rate to 8.00% from 10.00%, marking the eight consecutive cut. The decision overshot analysts’ expectations and followed a 200-basis-points cut in the previous meeting in March. As a result, the policy rate now stands at its lowest point since March 2014.

Contained inflation expectations and the economic fallout of Covid-19 were largely behind the Bank’s decision. Inflation fell to 2.3% in March (February: 2.4%), its lowest result in over six years as low energy prices and large supply of raw food outweighed the upside pressure on prices prompted by a weakening currency. Looser monetary conditions, coupled with additional liquidity support tools, aims to support the economy amid the health crisis which is taking its toll on business activity, employment and consumption.

Going forward, the Bank intends to continue unwinding its tight stance to 7.00% this year and may accelerate the pace of easing if downside risks to inflation, stemming from protracted weakness in consumption and business activity, materialize. That said, the Bank’s base case scenario relies on a new deal with the IMF, which remains crucial in protecting the economy from turbulence in global financial markets.

The next monetary policy meeting is scheduled for 11 June.

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