Ukraine central bank cuts policy rate by 5ppt to 22%

The National Bank of Ukraine (NBU) on Sept. 24 approved a 5ppt policy rate cut to 22%, according to its press release. Its plans to ease the monetary policy stance were launched last month, the statement said. “A gradual departure from the policy of ‘expensive money’ was made possible owing to a steady alleviation of the risks to price stability in Ukraine”, the statement said. On Aug. 28, the NBU reduced the policy rate by 3ppt to 27%.

Alexander Paraschiy: This policy rate cut, the second in a month, is a positive signal from the NBU indicating that monetary authorities are very optimistic about Ukraine’s economic prospects. Yet it will have a modest impact on producers since two-digit interest rates nonetheless are hardly affordable in a suffering economy. However, the policy rate cut will make the life of the banking system a bit easier.

Recall that a sharp policy rate increase was approved on March 4 in response to a new wave of currency shocks as monetary authorities were protecting against currency speculation. Yet the NBU is now daring to ease with the ForEx having calmed down and even some confidence in the national currency being observed. Still, except for facilitating more liquidity in financial sector and sending encouraging signals, this policy rate cut will not have much impact on the economic situation.

We expect the central bank will continue lowering the policy rate, which will finish the year in the high teens.