National Bank of Ukraine lowers policy rate to 22%, as expected
MOSCOW. July 27 (Interfax) - The National Bank of Ukraine has lowered the key policy rate to 22% from 25% per annum, as the market expected.
"The Board of the National Bank of Ukraine has decided to cut the key policy rate from 25% to 22% effective July 28, 2023. Rapid disinflation and sustained FX market conditions enabled the central bank to start the cycle of key policy rate cuts. Taking into account an improvement in inflation expectations and projected further disinflation, the current and forecast rate cuts conform to maintaining the attractiveness of hryvnia savings," Ukrainian media quoted the regulator as saying in a press release.
This step is an element of ensuring exchange rate sustainability amid the easing of FX restrictions and shift to a more flexible exchange rate. At the same time, lowering the key policy rate against the backdrop of sustained macro-financial stability will support economic recovery, the NBU said.
"In view of the faster-than-expected decline in inflation, long-lasting stable conditions on the FX market, a high level of international reserves, as well as the effectiveness of previous measures to boost the attractiveness of hryvnia assets, the NBU Board decided to start a key policy rate decrease cycle earlier than the April forecast envisaged," it said.
The NBU's previous measures significantly tightened competition among the banks for hryvnia term deposits. In summer, the banks continued to raise their interest rates on hryvnia deposits. At the same time, a rapid decline in inflation and a stable FX market encouraged depositors to refocus on hryvnia term deposits even more.
In addition, the NBU's ability to safeguard exchange rate sustainability increased, thanks to international assistance, which is contributing to depositors' optimistic expectations, the NBU said.
The NBU said it would continue to cut its key policy rate, provided the FX market remains stable and inflation declines over the forecast horizon.
When easing FX restrictions and transitioning to a more flexible exchange rate regime, the NBU will take into account the need to maintain the high attractiveness of hryvnia assets.
The NBU's revised macroeconomic forecast envisages further key policy rate cuts. The main prerequisite for this is maintaining the attractiveness of hryvnia assets at a sufficiently high level, which would protect hryvnia savings from being eroded by inflation.
Given high uncertainty, any further decisions and revisions of the NBU's key policy rate forecasts will largely depend on whether or not the forecast's assumptions materialize, as well as on the trends of key macroeconomic and financial indicators.
The NBU Board also lowered the interest rate on overnight certificates of deposit by 2 pp to 18%, and on refinancing loans by 3 pp to 24%.
"The interest rate on three-month certificates of deposit will continue to equal the key policy rate," the NBU said.
The policy rate had been 25% since June 6, 2022.