Ukraine: National Bank of Ukraine leaves rates unchanged in July
At its meeting on 25 July, the National Bank of Ukraine (NBU) decided to keep its key policy rate unchanged at 13.00%. The NBU stood pat after three consecutive cuts, largely aligning with market expectations for a pause.
The decision to hold was primarily driven by the acceleration of inflation, which rose to 4.8% year on year in June—the highest level since December 2023 and approaching the Bank’s 5.0% target. Additionally, the NBU expects inflation to continue increasing during the remainder of the year due to rising business costs, increases in excise taxes, the fading impact of last year’s bumper harvest and a drought fueling food prices. Moreover, the hryvnia’s weakening exchange rate—amid a surge in public expenditure—and persistent upside risks to inflation due to Russia’s invasion supported the decision.
The Central Bank stated that it would resume its easing cycle in early 2025, contingent on the balance of risks to inflation and the foreign exchange market. However, most of our panelists foresee additional rate reductions by the end of this year, with the Consensus being for about 100 basis points of cuts. The Russian invasion remains the key factor to watch, while potential additional damage to the country’s already strained energy infrastructure represents an upside risk.
Commenting on the reading, Andrew Matheny and Johan Allen, economists at Goldman Sachs, stated:
“In light of the hawkish surprise to our expectations, we have pushed back our expectations for when the NBU will start cutting. We now expect the NBU to start cutting in Q4, by 100bp in total. Our dovish views are mainly motivated by our more benign inflation forecasts relative to the NBU and we note that policy uncertainty stemming from the US election will likely be somewhat less going into both rate setting meetings in Q4 as they occur after election day.”