The National Bank of Ukraine (NBU) lowered the key policy rate by 100bp to 13.5% on April 25 and improved its inflation forecast as price pressure ease.  (chart)

With the discount rate decrease, the rates on overnight deposit certificates and three-month deposit certificates are also reduced - to 13.5% and 16.5%, respectively.

Ukraine’s prime rate is now significantly lower than that of Russia’s 16%, which is still grappling with high inflation of 7.7% and shows no sign of falling anytime soon. However, the Central Bank of Russia (CBR) predicted in its April macroeconomic survey that inflation would drop to 5.4% by the end of this year.

The NBU said that consumer inflation slowed faster than the regulator anticipated in the first quarter of the year. Despite the heavy spending on the war, inflation has been falling steadily since it peaked last year. Ukraine's inflation rate dropped to its lowest level in more than three years in March to 3.2% in annual terms, marking a significant slowdown in consumer price growth, according to data released by the State Statistics Service.

In March, the annual inflation rate in Ukraine stood at 3.2%, the lowest since October 2020 when it was recorded at 2.6%. The monthly increase in prices was modest at 0.5%, contributing to a year-to-date inflation rate of 1.2%.

The slowdown in inflation was primarily driven by a decrease in prices for food products and non-alcoholic beverages, which rose by 0.2% over the year. Notably, prices for vegetable oil surged by 13.5%, while milk and meat products saw increases of 8.8% and 7.7%, respectively. However, prices for eggs, oil, sugar, and vegetables experienced declines.

The NBU still predicts a moderate acceleration of inflation this year; according to the updated and improved forecast, the increase will be 8.2%. "In March, Ukraine received about $9bn from international partners, and in April, the second tranche of €1.5bn from the EU has already arrived. In addition, the US has approved a $61bn package of military and financial aid. Therefore, Ukraine can count on $38bn in foreign budget aid this year," the NBU is convinced.

In addition, the NBU believes there are prerequisites for further currency liberalization and a discount rate reduction to 13%.

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