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National Bank of Ukraine cuts the discount rate to 22%

The Board of the National Bank of Ukraine has adopted a decision to cut the NBU’s discount rate to 22% per annum, effective from September 25, 2015. NBU Board Resolution No. 627, dated September 24, 2015 On the Money Market Regulation has been issued to this effect.

The National Bank of Ukraine moves ahead with plans to ease the monetary policy stance, which was launched last month. A gradual departure from the policy of "expensive money" was made possible due to a steady alleviation of the risks to price stability in Ukraine.

In July-August, the deflation was observed, with the core inflation standing close to zero. A firm disinflation trend was a result of the joint efforts of the National Bank of Ukraine and the Government. The sound monetary and fiscal policy enabled us to contain the demand-side inflation, stabilize the foreign exchange market and anchor inflationary expectations.

The factors contributing to curbing inflation prevail throughout the forecast horizon. They include a stable money market, low world commodity prices, a further decline in inflationary expectations. The latter was underpinned by the completion of the debt operation to restructure Ukraine's sovereign debt, the ongoing successful cooperation with the International Monetary Fund, and support from other international partners.

At the same time, scheduled adjustments of administered prices and a long-term increase in wages and social benefits initiated by the Government will not exert significant upward pressure on inflation.

In view of the above, according to estimates by the National Bank of Ukraine, inflation is projected to follow a downward path. As a result, the Consumer Price Index growth will moderate to 12% by the end of 2016.

In view of the above, the National Bank of Ukraine keeps on easing the monetary policy stance. At the same time, this move is prudent and takes into account the need to remain on a disinflation path and reach a mid-term inflation objective of 5% yoy.

Such easing of the monetary policy stance will enable us to underpin a gradual recovery of economic activity, the signs of which are evident in the third quarter and will persist in the fourth quarter of 2015. In 2016, real GDP growth is projected to at 2.4% yoy.

Detailed macroeconomic forecast will be published in the Inflation Report on October 1, 2015.

The next meeting of the Board of the National Bank of Ukraine on monetary policy issues will be held on October 29, 2015 in accordance with the approved schedule.

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