The National Bank of Ukraine, or NBU, has made the decision to decrease its policy rate by 0.5 percent per annum, according to a press release by the NBU on April 25.
It is the role of the central bank of a country to fix and control this rate in order to regulate the availability, cost and use of money and credit. This rate determines all other interest rates in a country’s economy, which in turn impacts growth and inflation.
This new measure by the NBU will become effective on April 26 and was only made possible by a steady inflation decrease, the bank said.
It essentially cancels the NBU’s decision on Sept. 6 to increase the rate by 0.5 percent.
Inflation was measured at 8.6 percent in March, whereas core inflation (the change in the costs of goods and services but exclusive of food and energy) was measured at 7.6 percent in April.
Ukrainian financial authorities hope to see the rate to continue its decline, reach 6.3 percent by the end of 2019 and the 5 percent mark by the end of 2020.
However, the NBU does not ignore potential risks: “The usual increase in uncertainty during presidential and parliamentary elections poses the main internal risk to the said macroeconomic forecast (in particular, to inflation declining to the target in 2020).”
Although, the NBU appears confident as “underlying inflationary pressures continued to weaken in early 2019,” the report reads.
Core inflation is predicted to decline to five percent by the end of this year and 3.7 percent the following year, according to the report.
Sitting at Hr 26.53 to the dollar on April 25, the national currency has strengthened through the beginning of 2019, in part thanks to “the NBU’s tight monetary policy” reads the report.
Interest policy rate determines the monetary policy for the whole nation as banks will set their own interests on deposits and loans based on the central bank’s policy.
It has a direct impact on the cost of loans provided by the National Bank to commercial banks, which in turn affects the rate at which banks loan to their debtors.
The higher the rates, the less people will be seeking loans, which as a result hurts general demand for goods and services – often purchased on credits – and general consumption in the country.
