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National Bank of Ukraine Cuts the Key Policy Rate to 15%

15 September 2016

Press Release


The Board of the National Bank of Ukraine has decided to cut the key policy rate to 15%, effective from 16 September 2016. Monetary policy easing was due to further alleviation of risks to price stability, which is consistent with inflation targets set at 12% +/-3% for 2016 and 8% +/-2% for 2017.


Consumer prices dynamics during last months kept pace with the forecast appeared in the July 2016 Inflation Report. Therefore, inflation made 8.4% y-o-y in August.


Pressure on inflation driven by fundamental factors continued to ease. This is evidenced by further slower core inflation to 7.4% y-o-y. As originally purposed, it was due to low aggregate demand,  large supply of food products and restrained monetary policy.  Apart from this, inflation expectations also further improved both for households, business and expert community.


Economic activity gradually keeps on recovering: GDP growth accelerated to 1.3% y-o-y in Q2. Higher Index of Key Sectors Output (IKSO) remained set to 1.7% y-o-y in July. At the same time by estimates of the NBU, private consumption contribution to economic growth remained low and did not generate additional pressure on inflation despite high growth of real wages during the last months.


Inflation will approach the level of 12% y-o-y in Q4 2016. Mainly, it will take place due to reflection of higher tariffs for public utilities in statistics. Core inflation will continue to moderate by showing further weaker fundamental pressure on inflation, according to the NBU estimates. 


Higher volatility of exchange rate, which took place in August-September, did not create risk for inflation to exceed targets (12% +/-3% for 2016 and 8% +/-2% for 2017). As before, NBU did not impair dominant trends in FX market and smoothed out sharp exchange rate fluctuations through FX interventions, at the same time.


Completion of the second programme review under the Extended Arrangement will become an important factor for improvement of expectations, source of financing for country and a sign for both national and external investors that our country is on the right way to recovery of sustainable economic growth. Also, larger exports of grain and other agricultural crops due to high yield will set off recent decline in global markets prices.


But in the view of uncertainty as to external market situation, the NBU maintains sufficiently restrained monetary conditions.


In the event of a further risks mitigation for price stability the NBU will continue easing the monetary policy to support economic growth recovery.


The decision to cut the key policy rate to 15% is approved by NBU Board Decision No. 277-рш, dated 15 September 2016, On the Key Policy Rate.  


The next meeting of the NBU Board on monetary policy issues will be held as scheduled on 27 October 2016.


Last modification   15.09.2016