Central Bank leaves rates unchanged in October

Rate-setting pause extended, as expected: At its meeting on 31 October, the National Bank of Ukraine (NBU) decided to keep its key policy rate unchanged at 13.00% for the third consecutive meeting, in line with market expectations.

Rising inflation, weak hryvnia and U.S. elections motivate the hold: The NBU’s decision was aimed at supporting the hryvnia, ensuring inflation’s return below the 5.0% target and anchoring inflation expectations. September marked a faster-than-expected increase in inflation, and the Bank expects price pressures to remain elevated until next spring. Additionally, risks to inflation remain skewed to the upside due to the ongoing war against Russia, while risks to the hryvnia are overwhelmingly depreciatory, as rising risk aversion among investors boosts demand for safe-haven currencies. Lastly, the NBU stood pat in anticipation of the U.S. presidential elections on 5 November, which will affect foreign assistance going forward.

Central Bank delays plan to cut rates, panelists still dovish on the outlook: The Bank stated that it will keep the key policy rate at 13.00% until at least the summer of 2025—longer than it had previously announced. However, it also stated a readiness to tighten its interest rate policy and apply additional monetary measures if “price pressures continue to rise above forecast and threaten to unanchor inflation expectations”. Our Consensus is for the policy rate to end 2024 at its current level and to drop by about 125 basis points in 2025. Risks to the policy rate are skewed to the upside: Given Donald Trump’s reelection as U.S. President, U.S. aid will likely dwindle next year and the EU will be able to only partially replenish assistance to Ukraine. Such a development may prompt the Bank to extend its pause or even return to tightening its monetary policy stance. The Bank will reconvene on 12 December.

Panelist insight: Goldman Sachs analysts Andrew Matheny and Johan Allen commented on the outlook for inflation and monetary policy: “Our near-term inflation forecasts remain more dovish than the NBU, and the external funding outlook, in our view a 'binding constraint' for the NBU's ability to further ease interest rates, has improved considerably as of late. We therefore expect that the NBU will be able to restart its cutting cycle earlier than it is currently projecting. That said, it is hard to be certain about the path of inflation and the key policy rate given considerable uncertainty stemming from developments in the war, as well policy uncertainty regarding the future of financial support from Western allies.” EIU analysts held a more hawkish view: “We expect the NBU to hold rates at [13.00%] until late 2025 given additional inflationary pressures, but there is a risk that it opts to raise interest rates if inflation continues to accelerate. However, assuming that inflation stabilises in the medium term, another cycle of monetary policy easing is likely from late 2025 until mid-2027.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Ukrainian interest rate projections for the next ten years from a panel of 17 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for Ukrainian interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Ukrainian interest rate projections.

Want to get access to the full dataset of Ukrainian interest rate forecasts? Send an email to info@focus-economics.com.