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Ukraine Monetary Policy June 2023

Ukraine: NBU maintains key policy rate at 25.00% in June

At its latest meeting on 15 June, the National Bank of Ukraine (NBU) kept its key policy rate at 25.00%. The decision marked the eighth consecutive hold since the NBU raised the rate by 150 basis points in June 2022. Meanwhile, the Bank eased some capital controls, allowing residents to transfer funds abroad in order to repay external loans.

The NBU left the policy rate unchanged to maintain the attractiveness of hryvnia-denominated assets, support the exchange rate regime and sustain the disinflationary trend observed so far this year. Additionally, the Bank deemed it necessary to keep the policy rate at the current level to anchor inflation and inflation expectations, as core price pressures and uncertainty remain high due to the war.

In its forward guidance, the NBU commented that it “will continue to deliver the monetary conditions required for maintaining exchange rate sustainability and ensuring a steady drop in inflation”. It also noted that monetary policy easing could start earlier than Q4 2023—the date provisioned in the April 2023 policy report—if inflation moderates and international reserves rise faster than expected. In line with this view, the majority of our panelists foresee a lower policy rate from Q3 2023. However, an escalation of the war causing further large-scale infrastructure damage and adding additional fiscal pressure poses an upside risk to inflation and could delay the NBU’s pivot.

The next meeting is scheduled for 27 July.

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