National Bank of Ukraine lowers rates in June

At its meeting on 13 June, the National Bank of Ukraine (NBU) decided to cut the key policy rate from 13.50% to 13.00%. The decision was the third consecutive cut and met market expectations.

Domestic factors motivated the decision, including a decrease in inflation expectations and the fact that inflation remained below the NBU’s target range of 4.0–6.0% in May and was lower than the Bank had anticipated. An improving outlook for international funding inflows further pushed the NBU to continue its monetary policy loosening cycle.

The NBU noted that, while its April macroeconomic forecast envisaged rates to end 2024 at 13.00%, it stands ready to adapt its monetary policy if the balance of risks to inflation and exchange-rate stability changes. Moreover, the majority of our panel of analysts have penciled in between 100–400 basis points of cuts by year-end, with the rest expecting the NBU to stand pat. The course of Russia’s invasion and the potential inflationary pressure from additional attacks on critical infrastructure remain the key factors to watch.

Andrew Matheny, economist at Goldman Sachs, commented: “Our inflation forecasts remain weaker than the NBU and consensus, so we continue to see room for policy rate cuts of 200bp in H2 and for rates to reach neutral early next year, significantly ahead of the NBU's forecast.”

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