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National Bank of Ukraine cuts the discount rate to 27%

The Board of the National Bank of Ukraine has adopted a decision to reduce the discount rate from 30% to 27%, effective from August 28, 2015.

The tight monetary policy pursued by the National Bank of Ukraine in the past six months helped firmly anchor inflation and devaluation expectations and contributed to the stabilization of the FX market, thus putting inflation firmly on a downward path. The annual Consumer Price Index has been on a downward path for the third month in a row, whereas in July Ukraine recorded deflation in month-on-month terms.

The improvement of the situation in the FX market and stabilization of inflation expectations have encouraged the inflow of deposits to the banking system.

The National Bank of Ukraine expects the disinflation trend to persist in the period ahead due to the maintenance of relative stability in the FX market, a fading wave of massive price increases in housing and utilities and a slow recovery of consumer demand.  An additional factor behind the disinflation trend will be a high yield of grain, vegetables and fruit, which will contribute to the subdued food price dynamics. 

Given lower inflationary risks, the Board of the National Bank of Ukraine deems it appropriate to embark on easing the monetary policy consistent with the projected decline in the annual inflation rate. However, despite the reduction in the discount rate from its current high level, the monetary policy will remain relatively tight to support the disinflation trend and shield the Ukrainian economy from external shocks currently experienced by global commodity and financial markets.

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