The National Bank of Ukraine (NBU) has set the key interest rate at 16% as of Oct. 27, bringing it in line with the rate for overnight certificates of deposit (CDs), the NBU announced on Oct. 26.
Interest rates on its other operations with banks remain unchanged.
The rates for overnight, three-month CDs, and refinancing loans will remain at their current levels.
According to the NBU, it is modernizing its operational framework for monetary policy using the lower-bound system.
The regulator said that the rates for three-month CDs and refinancing loans will also remain unchanged and will be calculated as “key interest rate + 4 pp” — 20% and “key interest rate + 6 pp” —22%, respectively.
“The decision to leave the rates for NBU operations with banks unchanged is currently in line with the need to maintain the attractiveness of Ukrainian hryvnia instruments, which is crucial for ensuring moderate inflation and exchange rate stability over the forecast horizon,” the NBU said.
Another factor that requires further support for the attractiveness of hryvnia assets is the period of adjustment of foreign exchange market participants to the managed float of the exchange rate.
In order to maintain the attractiveness of hryvnia assets, the National Bank sees potential for further interest rate cuts at its next planned meeting, provided that there are no signs of deterioration in the risk balance and market participants successfully adjust to the new exchange rate regime.
The expected inflation trajectory and the plans for further steps in currency liberalization limit the scope for interest rate cuts next year. A return to the rate-cutting cycle in 2024 will only be possible if the risks to exchange rate stability and inflation dynamics are significantly reduced, as indicated by the regulator.
On Sept. 14, the National Bank’s board decided to lower the key interest rate from 22% to 20%.