Ukraine: NBU cuts interest rates further in September
At its 14 September meeting, the National Bank of Ukraine (NBU) slashed its key policy rate by 200 basis points to 20.00%. Concurrently, the NBU lowered the overnight certificates of deposit and the refinancing rate by 200 basis points to 16.00% and 22.00%, respectively. The move came on the heels of July’s 300 basis point cut.
The Bank continued with its monetary policy easing cycle—initiated in July—thanks to the faster-than-expected pullback of inflation and the NBU’s capacity to maintain stability in FX markets. Against this backdrop, September’s decision was aimed at supporting economic recovery amid the ongoing war.
Regarding future policy moves, the NBU stated it would continue its policy loosening cycle, “balancing cuts against the need to maintain the attractiveness of hryvnia assets”. Nevertheless, persistent uncertainty stemming from the war will continue to loom over policy. As such, deteriorating inflation expectations, resurgent price pressures, the declining attractiveness of hryvnia-denominated assets or exchange-rate instability could prompt the Bank to change its policy course.
The Consensus among our panelists is for 150 basis points of further rate cuts by the end of 2023. The evolution of the war, foreign aid inflows and the strength of the domestic economy remain key factors to monitor.
The next meeting is scheduled for 26 October.
On the outlook, Goldman Sachs analysts Andrew Matheny and Johan Allen commented:
“We continue to expect the disinflation process to continue in Ukraine, enabling the NBU to cut rates to 17.00% by year-end while maintaining the appeal on Hryvnia-denominated assets. Over the past months, the NBU has proceeded with easing FX restrictions, and the next major step of their strategy is to start to transition to a flexible exchange rate.”
Analysts at the EIU provided a contrasting view:
“We expect a further cut, to 19.00%, in October, with the rate then remaining unchanged for the remainder of 2023 as food and energy prices rise with the onset of winter. […] We do not expect the NBU to resume a free float of the hryvnia in 2023, but the bank is making progress in moving towards a flexible exchange rate.”