Ukraine: NBU slashes key policy rate to all-time low in June
At its 11 June monetary policy meeting, the National Bank of Ukraine (NBU) decided to slash the key policy rate to 6.00% from 8.00%, marking the ninth consecutive cut. The decision significantly overshot analysts’ expectations and followed a 200-basis-points cut in the previous meeting in April. As a result, the policy rate now stands at an all-time low.
With the Ukrainian economy set to face a deeper contraction than previously expected, the NBU sees inflation staying below its target range of 5.0% plus or minus 1.0 percentage point for a long period of time, thus providing room for further monetary stimulus. Inflation declined to 2.1% in April (March: 2.3%), marking the lowest print since February 2014. Subdued consumption and investment are keeping a lid on price pressures as the economy battles Covid-19, while a stronger hryvnia is further limiting inflation. In addition, the Bank’s decision was supported by the new cooperation agreement with the IMF totaling USD 5.0 billion and approved on 9 June, which, on top of boosting international reserves, enables Ukraine to tap international capital markets to ensure financial stability.
Going forward, the Bank hinted that the rapid monetary policy easing cycle is coming to an end. The next monetary policy decisions will depend on the evolution of consumer demand and its effect on inflation, as well as on the pace of recovery in business activity as lockdown conditions gradually ease.
The next monetary policy meeting is scheduled for 23 July.