Ukraine’s central bank is expected to press ahead with interest rate cuts after it began easing war-time tightening this year in response to a rapid drop in inflation into single-digit territory.
(Bloomberg) — Ukraine’s central bank is expected to press ahead with interest rate cuts after it began easing war-time tightening this year in response to a rapid drop in inflation into single-digit territory.
Policymakers in Kyiv may cut the benchmark rate by two percentage points to 20% on Thursday, according to the median estimate of economists surveyed by Bloomberg. The National Bank of Ukraine cut the rate by three points in July for the first time since Russia’s invasion prompted central bankers to ratchet borrowing costs up to 25% in June 2022.
Ukraine’s economy has been battered as the Russian attack devastated a swathe of the country’s infrastructure, throttled grain exports and squeezed demand. But fears of spiraling inflation have been kept in check by ebbing commodity prices globally, tight monetary policy and a stable hryvnia.
“The NBU has to decide whether to stick to its original plan of conservatively lowering the rate to 20% — or cut it by at least 300 basis points as inflation slows,” said Mykhaylo Demkiv, an analyst at investment bank ICU.
Consumer prices confounded expectations in August, rising by 8.6% annually after economists had predicted more than 10%. The figure was 11.3% in July.
Reflecting confidence in a more buoyant economy, the central bank is easing currency controls that were imposed at the start of the war, helped by an influx of foreign aid and the resilience of local businesses. The NBU last month expanded the limit on foreign-currency purchases, giving households more options to shield their savings.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.