The Board of the National Bank of Ukraine has decided to cut the key policy rate to 10% per annum effective 13 March 2020. The NBU continues its monetary policy easing, as predicted, in order to bring inflation back to its target range of 5% +/- 1 pp and to support economic growth in Ukraine amid a cooling global economy.
In January–February, consumer inflation declined faster than foreseen in the forecast trajectory (reaching 3.2% yoy in January and 2.4% in February), remaining below the target range of 5% +/- 1 pp. Core inflation was also lower than forecast during this period.
In January the NBU forecast inflation at 4.8% as of the end of 2020, but this forecast may be reviewed in April depending on further developments
So far, the global spread of the novel coronavirus has had a limited or neutral impact on the economy of Ukraine. Ukraine’s exports continue to rise. Uncertainty over the spread of the novel coronavirus, and stronger turbulence on financial and commodity markets saw the Ukrainian FX market respond with deteriorated sentiment and increased nervousness.
Apart from the drop in global prices caused by the coronavirus, disinflation in Ukraine will be driven by the recent rise in competition between crude oil producers. This will keep energy prices at record lows, which will also impact prices for Ukrainian exports. Overall, the effect of all these factors on economic growth and inflation in Ukraine will be mixed, adding to the uncertainty.
The NBU Board relied on the key assumption that cooperation with the IMF continues.
Therefore, the NBU Board made its key policy rate decision when inflationary pressures were decreasing faster than expected, and the economy needed further support. In view of the above, the NBU Board continued its monetary policy easing cycle by cutting the key policy rate by 1 pp, to 10%, as envisaged by the central bank’s January forecast. This will give the required impetus to the economy.
As before, the NBU plans to decrease its key policy rate to 7% by the end of the current year.