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National Bank of Ukraine leaves the discount rate unchanged

The Board of the National Bank of Ukraine has decided to leave the discount rate unchanged at 22% per annum. NBU Board Resolution No. 750, dated October 29, 2015 On the Money Market Regulation has been issued to this effect.

During the deliberation of this issue, the Board members pointed to some recovery in economic   activity in September, which was reflected in better industrial and agricultural output figures, as well as higher export revenues.   In particular, in September, the decline in the Index of Key Sectors Output moderated to 7.4% yoy compared with 9.7% in August, primarily reflecting better performance of the agricultural and industrial sectors.   Implementation of the agreements on cessation of hostilities contributed to the faster growth in the mining industry and the recovery of metallurgy growth.

Further stabilization of the financial system is taking hold.   Firstly, domestic-currency retail deposits have kept increasing, whereas foreign currency deposits reported growth in September for the first time in the past two years.   Second, an excess of foreign exchange supply over demand has enabled the National Bank to accumulate international reserves. There has been progress in anchoring mid-term inflation expectations of market participants.

Despite such positive developments, the Board of the National Bank of Ukraine took into account ongoing short-term inflation risks when taking a decision to keep the discount rate unchanged. Headline inflation in September 2015 accelerated to 2.3% mom, primarily reflecting lagged effects of Hryvnia devaluation on prices of seasonal goods and further increases in administered prices.  In October, inflation figures are expected to be relatively high, primarily reflecting price rises for some foodstuffs due to a lower-than-expected harvest of seasonal crops, as well as increases in heating prices.

The decision by the Board of the National Bank of Ukraine to keep the discount rate unchanged aims to further anchor inflation expectations.

The fundamental factors underpinning the disinflationary trend remain relevant.  These factors include weak domestic demand, low global commodity prices, a balanced current account and sound fiscal policy. In view of the above, the National Bank of Ukraine keeps its inflation projections unchanged at 12% (by the end of 2016). Going forward, as an expected disinflationary trend takes hold, the National Bank of Ukraine will continue monetary policy easing, which was initiated in August 2015.

Given a gradual stabilization of the banking system, the Board of the National Bank of Ukraine adopted a decision to reduce the amount of cash balances which banks are allowed to include in reserves from 100% to 75%.

Today, the Board of the National Bank of Ukraine has approved a schedule for regular monetary policy decision-making meetings for 2016. It has been published on the NBU’s official website, which would enhance the transparency and predictability of monetary policy decisions to the market and the public.

The next meeting of the Board of the National Bank of Ukraine on monetary policy issues will be held on December 17, 2015 in accordance with the approved schedule.

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