The National Bank's Board on Thursday, September 3, decided to leave its key policy rate unchanged, at 6% per annum.

As before, a longer-lasting coronavirus pandemic, the further spread of the disease, and stricter quarantine measures remain the key risks to macrofinancial stability, reads the NBU report released on its website.

Coronavirus and its consequences for the country

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"The increase in the number of coronavirus cases in Ukraine seen in recent months has not affected the pace of economic recovery. Nevertheless, a new wave of COVID-19 could restrain consumer demand and slow the recovery in domestic-market-oriented sectors, especially the services sector," the report reads.

Consumer demand recovery

Given the balance of risks and the steady trend towards recovery in consumer demand, the NBU Board kept the key policy rate unchanged, at 6%.

The fact that the key policy rate is being kept below its neutral level shows that monetary policy is expansionary," NBU Governor Kyrylo Shevchenko told a Kyiv briefing. "The policy also leaves enough room for further interest rate cuts in the economy."

Key rate

It is noted that previous key policy rate cuts are continuing to be transmitted to market rates. More specifically, interest rates on hryvnia domestic government debt securities and hryvnia deposits are at record lows. Loan rates are also continuing to fall.

"The NBU has also intensified its regulatory activities in order to promote lending, as well as activities aimed at reducing the share of nonperforming loans in the banking system. This will bolster the downward trend in interest rates on corporate and household loans," says Shevchenko.

NBU’s future monetary policy will mainly depend on how the COVID-19 pandemic develops.

"Under current circumstances, the key policy rate of 6% is aimed at keeping the balance between maintaining moderate inflation and stimulating the economy. However, if the adverse impact of the coronavirus pandemic on domestic demand and business activity increases, the NBU will be ready to give the economy additional impetus for growth. Conversely, the NBU could also deploy monetary policy tools to respond to the likely increase in inflation risks in 2021," the central bank says.

Cooperation with IMF

The primary assumption behind the NBU Board’s decisions remains that Ukraine will continue to cooperate with the IMF.

Cooperation with the IMF "is important not only in terms of financing the state budget deficit, but also from the perspective of receiving support from other international partners and investors. Funds from these sources will go to finance anti-coronavirus measures and infrastructure projects, which will help jump-start the still weak investment activity."

Previous key rate

On June 12, the NBU lowered the key rate to a historic low of 6%. In July, the central bank kept the rate unchanged.