National Bank of Ukraine holds key rate at 15%, as expected

MOSCOW. Jan 25 (Interfax) - The National Bank of Ukraine has decided to keep its key policy rate at 15% per annum, as the market expected.

The decision reflects the need to maintain exchange rate sustainability, keep inflation moderate in 2024, and bring it to the target range of 5% +/- 1 pp, Ukrainian media quoted the NBU as saying on Telegram.

The NBU estimates inflation will be within the target range in the coming months, accelerating somewhat from the middle of the year as effects of last year's harvest wane and business costs pass through to consumer prices. Further recovery in consumer demand will also put pressure on prices.

Inflation is expected to be 8.6% at the end of 2024, return to the target range and be 5.8% in 2025, and return to the 5% target in 2026.

Keeping the discount rate at 15%, according to the regulator, will continue to keep hryvnia instruments appealing so that their yield continues to exceed current and expected inflation.

International financial support to Ukraine will continue, albeit declining in volume, the NBU said. This will enable it to maintain international reserves at a high level and ensure exchange rate sustainability. Ukraine is expected to receive about $37 billion in foreign loans and grants in 2024.

The baseline scenario of the NBU's updated forecast, which assumes that Ukraine will receive sufficient international financing and that security risks will subside from next year, provides for a slight reduction in the key policy rate starting in H2 2024. At the same time, the NBU will adapt its monetary policy if the balance of risks for inflation and exchange rate sustainability changes.

The policy rate has been 15% since December 15, 2023, when it was lowered from 16%.