Ukraine’s Central Bank decided to cut its key policy rate by half a percent to 17.5%, the institution announced on Thursday 25th April.
The Central Bank decides to cut interest rates after observing Ukraine’s interest rate declining steadily towards the bank’s 5% target, thereby promoting the beginning of a cycle of key policy rate cuts. In March 2019, annual consumer price inflation fell to 8.6%, while core inflation all dropped to 7.6%.
The Bank also stressed that it still expects inflation to decline to 6.3% by the end of 2019 and reach 5% by the end of 2020 as a result of tighter monetary and fiscal policies. The following were listed as the main factors that will contribute significantly to the inflation rate reaching its 5% target:
● slower growth in wages, which are gradually converging with wages in neighboring countries, as a result of weaker migration processes
● appreciation of the hryvnia in Q1 2019, which will limit growth in prices for nonfood goods
● lower global prices for natural gas that will pass through to domestic prices
● larger supply of both domestic and imported food products.
The press release also stated the external risks that could have an effect on future policy decisions, including lower raw commodity prices, stronger geopolitical tensions and relations with Russia.