The National Bank of Ukraine (NBU) has decided to maintain the key interest rate at 15%, with an expectation of a gradual reduction starting in the second half of 2024, the NBU press service said on Jan. 25.
“This decision comes along with the need to maintain exchange rate sustainability, keep inflation moderate in 2024, and bring it to the target range of 5% ± 1 pp over the monetary policy horizon,” the message quotes NBU governor Andriy Pyshnyy.
The NBU would adjust monetary policy in response to alterations in the risk balance for inflation and exchange rate stability, Pyshnyy added. NBU's fundamental forecast scenario, predicated on securing ample international financing and diminishing security risks in the upcoming year, envisions a marginal reduction in the key interest rate starting from the second half of 2024.
The key interest rate, as outlined in the forecast graph, is anticipated to decline to 14.6% in Q3 2024, further reducing to 14.2% in Q4 2024, 13.6% in Q1 2025, and 13.1% in Q2 2025. The rate is projected to be within 12.2–12.0% by the end of 2025 and the beginning of 2026.
The governor also reported a gradual decline in interest rates on hryvnia-denominated lending July to December 2023, attributed to NBU's monetary policy easing. The yield on hryvnia instruments remained higher than the current and anticipated inflation. Household hryvnia-denominated deposits and domestic government bonds have continued to grow as a result, aligning with NBU's objectives.
"In view of the expected acceleration of inflation in 2024 and the upward shift of the balance of risks, the NBU considers it appropriate to keep the key policy rate unchanged,” Pyshnyy summarized.
“This will help maintain the attractiveness of hryvnia instruments, which will limit demand on the FX [foreign exchange] market, while also helping the NBU to discharge its mandate for safeguarding exchange rate sustainability."
The governor said that the NBU will actively participate in the foreign exchange market, mitigating undue exchange rate fluctuations through a managed flexibility approach.
Further decisions regarding the key interest rate will hinge on inflation dynamics, foreign exchange market conditions, the pace of international aid, developments in security risks, and other factors.
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