The board of the National Bank of Ukraine has decided to cut the key policy rate to 16.5% per annum, effective 6 September 2019. The NBU has said that it is continuing the cycle of monetary policy easing, as it expects inflation to decline to the target of 5%.
In July, inflation was at 9.1% year-on-year, which was above the forecast trajectory published in the latest Inflation Report. The NBU expects inflation to have declined in August, although still remaining above the forecast level. The deviation was mostly driven by temporary factors related to food supply, in particular the supply of vegetables.
Core inflation, at 7.4% year-on-year in July, was in line with the NBU’s projections. The tight monetary policy was a strong factor holding back the underlying pressures on prices, in particular through the exchange rate channel. However, greater domestic demand and higher wages kept on restraining the slowdown in inflation.
The NBU reiterates its forecast that inflation will meet the 5% medium-term target at the end of next year. Macroeconomic factors in place since the previous monetary policy meeting of the NBU board have not changed the balance of risks to the forecast.