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Ukraine Monetary Policy April 2024

Ukraine: National Bank of Ukraine decreases policy rate in April

At its meeting on 25 April, the National Bank of Ukraine (NBU) decided to lower the key policy rate from 14.50% to 13.50%, effective from 26 April 2024. The decision surprised markets, which had broadly expected a smaller cut.

April’s decision was primarily influenced by March’s inflation reading, as well as inflation expectations, which both came in below the NBU’s forecasts. Consumer inflation dropped more rapidly than anticipated, which the Bank attributed to such factors as reduced energy costs and a mild winter that increased the supply of raw foods, alongside a bumper harvest last year. Moreover, risks to international aid inflows subsided in recent weeks, giving the NBU leeway to continue easing its monetary policy stance. The fact that preliminary GDP growth estimates fell short of its forecast in Q1 2024 also drove the decision.

The National Bank of Ukraine indicated that there is room for further monetary policy easing, hinging on the persistence of favorable macro-financial trends. Specifically, the NBU’s baseline scenario is for the key policy rate to end 2024 at 13.00%, suggesting a continued cautious approach to monetary policy easing to support lending and economic recovery without compromising macro-financial or exchange rate stability. At the same time, the Bank stated that lower-than-expected inflation or a stronger-than-anticipated hryvnia could allow for steeper rate cuts. Our panelists expect about 175 basis points of additional monetary policy loosening by end-2024.

The Bank’s next monetary policy meeting will be held on 13 June.

Goldman Sachs analyst Andrew Matheny said:

“We expect weak inflation prints throughout Q2 to enable the NBU to cut by 100bp at the next meeting in June, before slowing the pace of cuts and for rates to reach neutral early next year, significantly ahead of the NBU’s forecast.”

EIU analysts said:

“We believe that a further reduction of 50 basis points, to 13%, is likely at the next rate-setting meeting on June 13. Increasing inflation in the second half of the year is likely to be driven by increased war-related pressures, the harvest surpluses from end-2023 and continuing but moderate currency depreciation. However, this is also likely to be accompanied by improving growth as government expenditure and private demand pick up following increases in aid flows.”

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