Ukraine central bank cuts policy rate by 1.0pp to 14.0%

The board of directors of Ukraine’s central bank (NBU) approved on Oct. 27 a policy rate cut by 1.0pp to 14.0%, the NBU said in a press release. It was the sixth policy rate cut since April 22 with a total reduction of 8.0pp from 22%. Consumer prices grew 7.9% yoy in September, the release said, driven by a 27.8% yoy increase in electricity rates. Core inflation was more modest  at a 6.3% yoy increase, indicating fundamental inflation drivers are easing. Another factor in the decision was an excessive supply of foreign currency at the ForEx in October.

The central bank said it still anticipates inflation hitting 12%, +/- 3pp by the year end. If risks to price stability keep easing, the policy rate will be cut even further, the bank said. Its next meeting will be held on Dec. 8, at which it will consider a revision of the policy rate.

Alexander Paraschiy: Modest inflation and positive tendencies at the ForEx created a solid foundation for the further rate reduction. We expect interest rates, including two-week certificates of deposit, to follow the policy rate decline, thus making the price for money more affordable for businesses. 

There’s still a long way to go but we have already observed a positive signal on lending: the recent hryvnia-denominated loans decline slowed to -1.5% yoy in September from -8.5% yoy in August. And the banking system’s hryvnia-denominated loan portfolio has been growing for three months in a row. If there are no surprises with inflation and the hryvnia remains more or less stable, we anticipate a further policy rate cut in December.