The National Bank has decided to cut key policy rate from 14.5% to 13.5% starting from April 26th, continuing the cycle of monetary policy easing. This move will support credit growth and economic recovery without posing additional risks to price and financial stability, according to the NBU website.

Actual consumer inflation slowed to 3.2% yoy in March and was below the NBU’s forecast published in the January 2024 Inflation Report. The deviations from the forecast were primarily driven by factors that were difficult to predict, including temporary ones. Mild winter led to higher supply of raw foods and lowered the pressure from business costs, in particular the cost of energy.

Core inflation also slowed (to 4.2% yoy) but was rather close to the NBU’s forecast. On the one hand, further growth in labor costs and consequences of the blockade of the western borders supported underlying inflationary pressures.  At the same time, taking into account the improved dynamics of actual inflation and better inflation expectations, the NBU has lowered its end-2024 inflation forecast, from 8.6% to 8.2%.

The economy is expected to grow by 3% in 2024 and by 4.5%–5% in 2025–2026. However, the growth forecast has been revised downwards due to the consequences of Russia's attacks on energy infrastructure.

As expected, Ukraine received USD 9 billion from international partners in March, which allowed the country to increase its international reserves to almost USD 44 billion. Moreover, in the past days, Ukraine received positive news from the United States about the approval of the military and financial assistance package. Ukraine also received another tranche from the EU in the amount of EUR 1.5 billion. In such a way, Ukraine can count on receiving USD 38 billion in external budgetary support this year. 

The following risks also remain significant: 

• the emergence of additional budget needs to maintain defense capabilities or cover substantial quasi-fiscal deficits, in the energy sector in particular 

• heavy damage to infrastructure, especially energy and port infrastructure, which will limit economic activity and put supply-side pressures on prices

• the continuation of the partial blockade of freight transportation at border crossings with some EU countries, which will depress exports and make imports more expensive 

• the deepening of adverse trends in migration, and

• the aggravation of the situation in the Middle East, which, in particular, increases the risks of possible disruptions to energy supplies and a rise in energy prices for the global economy.

Taking into account the balance of risks, as well as favorable macrofinancial trends, in particular better inflation dynamics, the NBU Board decided to cut the key policy rate by 1 pp, to 13.5%.

The NBU is also cutting the interest rates on overnight certificates of deposit and three-month certificates of deposit, to 13.5% and 16.5% respectively. What is more, the NBU is decreasing the interest rate on refinancing loans more pronouncedly – by 2 pp, to 17.5%. In the context of the interest rate policy easing cycle, the need to maintain a significant difference between the interest rate on refinancing loans and the key policy rate is diminishing.

A summary of the discussion by Monetary Policy Committee members that preceded the approval of this decision will be published on 6 May 2024. 

The next meeting of the NBU Board on monetary policy issues will be held on 13 June 2024, according to the confirmed and published schedule.