National Bank of Ukraine cuts key policy rate, first time in two years

The Board of the National Bank of Ukraine has decided to cut the key policy rate to 17.5% per annum effective April 26, 2019, according to the NBU press service.

It is noted that inflation declining steadily towards the target of 5% allows the National Bank of Ukraine to start the cycle of key policy rate cuts.

At the same time, the NBU Board sees risks that may hinder these plans.

The usual increase in uncertainty during presidential and parliamentary elections poses the main internal risk to the said macroeconomic forecast (in particular, to inflation declining to the target in 2020). The NBU will consider this risk in its monetary decisions mainly due to its impact on the financial market and inflation expectations.

The following external risks are also important: the global recession and lower raw commodity prices; stronger geopolitical tensions, particularly due to the uncertainty around Brexit; uncertainty over the volume of gas transit through Ukraine starting in 2020, as pipelines bypassing the country are being built to deliver gas to Europe; and an escalation of the military conflict and new trade restrictions introduced by Russia.

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The expected increase in some tariffs to the market levels and higher excise taxes on alcoholic and tobacco products will also restrain the decline in inflation.

"As it initiates an easing cycle, the NBU Board points out that the further steps will depend on the realization of inflation risks and an improvement in inflation expectations," the report reads.

The next Board meeting is scheduled for June 6, 2019.

As UNIAN reported earlier, in March 2019, the NBU decided to maintain the key rate at 18% per annum for the fourth consecutive time.

The last time the NBU lowered the key rate was in May 2017, after which the rate was either raised or maintained.

The maximum key rate in Ukraine's history at 30% was effective from March 4 to August 28, 2015.

Inflation in Ukraine in March 2019 amounted to 8.6% in annual terms, slowing down from 8.8% in annual terms a month earlier.

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The 2019 State Budget is based on a macroeconomic forecast with real GDP growth of 3% with inflation at 7.4%.

The National Bank of Ukraine predicts a slowdown in inflation in 2019 to 6.3%, while the International Monetary Fund and the World Bank say it will be 7.3%.

According to the consensus forecast of experts polled by UNIAN, this year, Ukraine is expected to see a slowdown in consumer price growth to 7.2%.