Majority NBU MPC members expects fall in key policy and transactions' rates by 1 pp in Dec, while others assume fall of 2 pp – results of discussion
Most members of the Monetary Policy Committee (MPC) of the National Bank of Ukraine (NBU) expect that the key policy rate will be cut by 1 pp, down to 15%, in December from the current 16%, but several of their colleagues said that prerequisites have already been met for a more significant reduction – by 2 pp – to 14% in the key policy rate, according to the results of the MPC discussion held on October 26, published by the central bank on Monday.
"All MPC members are seeing the possibility to ease the interest rate policy further, provided that market participants can successfully adjust to the new FX regime and that there is no noticeable deterioration in the balance of risks," a statement on the NBU website says.
Along with the reduction in the key policy rate, all members of the committee expect that other NBU rates for transactions with the banks will be adjusted accordingly.
At the same time, the discussion participants generally agreed that the potential for a loosening of interest rate policy in 2024 appears limited at this time because of FX liberalization plans and an anticipated acceleration of inflation next year.
"The sufficient attractiveness of hryvnia instruments will remain one of the important prerequisites for preserving the sustainability of the FX market, the MPC members said. To this end, the NBU will have to maintain sufficiently high rates for transactions with the banks," the NBU said in the report.
However, several MPC members suggested that the NBU may revise the forecast of the key policy rate in the new forecast cycle in January if positive shifts occur in the balance of risks to exchange rate sustainability and price dynamics.
The grounds for such a revision can include confirmation of the regularity of international aid, improvement of expectations, and a better than currently expected balance of supply and demand in the FX market.
"Such developments will make it possible to move towards a point where interest rates can be lowered further," the central bank said.
In the updated forecast of the dynamics of the key policy rate after its reduction to 15% following the meeting of the Commission in mid-December of this year, the next reduction is by another 1 percentage point expected only closer the end of the first quarter of 2025.