National Bank of Ukraine holds policy rate at 25%, as expected
MOSCOW. April 27 (Interfax) - The National Bank of Ukraine has again left the key policy rate unchanged at 25% per annum, as the market expected.
"The Board of the National Bank of Ukraine has decided to keep its key policy rate at 25% per annum. This will support the effects of previous measures to improve attractiveness of hryvnia assets, help maintain sustainability of the FX market, and form proper conditions for the continuation of steady disinflation trend and for easing the most burdensome FX restrictions," Ukrainian media quoted the NBU as saying in a press release.
The rate decision takes into account risks, high uncertainty, and a significant amount of expected budget expenditures. Maintaining exchange rate sustainability amid a pursuit of currency liberalization plans will require the NBU to continue to take a monetary policy approach that makes hryvnia-denominated savings highly attractive, the regulator said.
Keeping the key policy rate at 25%, introducing additional instruments for preventing household savings from being eroded away by inflation, coupled with measures to increase competition among the banks for time deposits, contributed to greater exchange rate sustainability, it said.
These measures among other factors boosted demand for hryvnia instruments, while cutting demand for FX, which is evidenced, among other things, by the considerable strengthening in the hryvnia's cash exchange rate seen from the start of 2023, which had a positive effect on expectations, while also supporting a downward trend in inflation.
At the same time, exchange rate sustainability is primarily being ensured by tight currency restrictions. Their effectiveness wanes over time, while their restrictive effect on business activity grows in intensity, the NBU said. It is therefore becoming increasingly desirable to liberalize FX restrictions in the foreseeable future, it said.
With uncertainty still being high and the risks of current account balances growing further amid significant budget expenditures, the key prerequisite for preserving exchange rate sustainability and sustaining the decrease in inflation is to make sure that hryvnia savings are attractive, which also makes it necessary to keep the key policy rate at the level of 25% per annum, it said.
"The updated macro forecast envisages the launch of a cycle of key policy rate cuts in Q4 2023. Even if such a scenario materializes, monetary conditions will remain fairly tight over the forecast horizon as inflation continues to slow, inflation expectations improve, and real returns on hryvnia instruments remain high," the NBU said.
The NBU is ready to adjust the time and pace of changes in the key policy rate in view of FX market developments, inflationary dynamics, the sustainability of international support, and the effectiveness of measures to make hryvnia instruments attractive.
The rate has been 25% since June 2022.