The Board of the National Bank of Ukraine has decided to cut the key policy rate to 8%. The continued monetary easing aims to support the economy during the period of pandemic and quarantine.
In March–April, inflation was lower than expected, despite the temporary price growth in the first weeks of the quarantine
Inflation will accelerate moderately in the coming months, to reach 6% at the end of 2020, thus remaining within the target range. Fiscal and monetary policy measures that are aimed to support businesses and households will partially offset the decline in consumer demand.
The economy of Ukraine will contract by 5.0% in 2020 in the wake of the quarantine imposed to overcome the pandemic and due to the global crisis. However, it will resume growth at round 4% in the following years.
The NBU revised the forecast of current account deficit for 2020 downwards
This year, the current account deficit will be 1.7% of GDP (versus 3.2% in the January forecast). Imports of goods to Ukraine will decrease more than exports. Nevertheless, the deficit will continue to range between 3% and 4% of GDP, as envisaged in the NBU’s January forecast.
Continued cooperation with the IMF remains the key assumption of this macroeconomic forecast
Ukraine is close to having a new aid program approved by the IMF Executive Board. The NBU’s revised forecast envisages that Ukraine will receive the first tranche of about USD 2 billion in Q2.
In this light, the NBU Board decided to cut the key policy rate considering that inflationary pressures were moderate, and the economy required substantial support due to the adverse impact of quarantine measures on business activity, consumption and employment. In view of the above, the NBU continued to ease monetary policy, by cutting the key policy rate by 2 pp, to 8%.
