Ukraine central bank cuts key rate 1pp to 18%

The board of directors of the National Bank of Ukraine (NBU) cut its key rate on May 26 by 1pp to 18%, according to an NBU press release that day. The board determined the reduction to be possible due to a continuing disinflation tendency (as CPI growth slowed to 9.8% yoy in April from 20.9% yoy in May).

The revision of the key rate will have an immediate effect on money markets, as the NBU pegs interest rate on its two-week certificates of deposit to the key rate.

Also in the release, the NBU stated that it will soften its monetary policy in case inflation risks decrease further. It referred to IMF cooperation as the key driver for reaching price stability in Ukraine. The next NBU board meeting to consider revising the key rate is scheduled for June 23.

Alexander Paraschiy: A further key rate reduction has been widely discussed in recent weeks, though it didn’t look likely at this time after the NBU’s drastic cut (to 19% from 22%) a month ago. Most likely, encouraging signals from external accounts (NBU Head Valeria Gontareva claimed yersterday the C/A balance was in surplus in April), positive tendency on the ForEx market (NBU continuing to purchase excessive foreign currency supply) as well as a swelling “rate-cutting mood,” pushed the board of directors to take small steps without delay.

This approach means that, very likely, a further minor rate reduction should also be expected if the current positive macro and ForEx tendencies are maintained.