The National Bank cuts the key policy rate to 20%: What it means for Ukrainians

The National Bank of Ukraine has decided to cut its key policy rate from 22% to 20%. Andriy Pyshny, the NBU governor, announced the decision on September 14. The rate cut was made possible due to the rapid slowdown in inflation and stability in the foreign exchange market, which allowed the key policy rate cycle to continue.

One of the factors that contributed to the stability of the foreign exchange market is the attractiveness of hryvnia time deposits. These deposits attract households' hryvnia funds, limiting the demand for foreign currency. The key policy rate cut, which took place against the backdrop of macrofinancial stability, will also contribute to economic recovery.

As for inflation, the exchange rate factor contributed to the decline, both directly affecting the cost of goods and indirectly through improved market expectations. The NBU's refusal to use monetary financing of the budget in 2023 was also important, as it helped to avoid hidden money creation by buying back domestic government bonds.

Andriy Pyshnyi emphasized that inflation slowed to 8.6% in August. Food prices declined due to good harvests of cereals, flour, vegetables and fruits. The key policy rate cut should help to maintain stability and improve Ukraine's economic performance.