Saturday, July 13, 2024
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Ukraine’s central bank cut its key interest rate on Thursday at a second consecutive monetary meeting, lowering it to 20% as the war with Russia nears the 19-month mark.

The central bank last cut its rate to 22% from 25% on July 27.

“The further pullback in inflation and the NBU’s ability to ensure FX market sustainability are making it possible to continue the cycle of key policy rate cuts while maintaining the sufficient attractiveness of hryvnia savings,” the National Bank of Ukraine said in a statement.

“Such a step will support the economic recovery without posing threats to macroeconomic and financial stability,” it said.

The central bank said it planned to continue its key policy rate-cutting cycle, but will act cautiously given great uncertainty and high war-related risks.

The cut was expected by bankers and analysts as inflation has been slowing faster than expected so far this year. In August consumer price inflation slowed to 8.6% year-on-year, the statistics data showed.

The central bank said that the consumer inflation has been decreasing faster than expected, mainly thanks to higher food supply, and that a good harvest has contributed to lower prices for cereals, flour, vegetables, and some fruits.

Still, core inflation of 10% in August was close to its forecast, it said.

“The overall downward trend in inflation will continue, but the potential for a rapid decline is almost exhausted,” it said.

Better harvests will limit price growth in the coming months, the bank said, but the pressure on businesses’ costs will remain significant, both due to war-related losses and rising electricity and fuel prices.

“The key risk to inflation dynamics and economic development is the protracted duration and unpredictable nature and intensity of the full-scale war,” it said.

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