NBU cuts prime rate to 13.5% following approval of US support package

UKRAINE - In Brief 26 Apr 2024 by Dmytro Boyarchuk
The NBU Board reduced the prime rate by 1.0 ppt to 13.5%, effective April 26. This decision was facilitated by a steady slowdown in consumer inflation (+0.5% m/m or +3.2% y/y in March), a $9.3 billion foreign currency inflow in March, and the recently approved $61 billion aid package from the US. It would be accurate to say that the $61 billion US package was the primary reason the NBU felt confident enough to cut the rate after quite turbulent weeks in the FX market, with the low inflation and financial inflow providing a supplementary backdrop for this move. The NBU now expects to reduce the prime rate to 13% further this year. The NBU has slightly lowered its inflation forecast for 2024 to 8.2% ytd, down from 8.6%, indicating an expectation of a significant acceleration in inflation in the second half of 2024, most likely due to utility tariffs. As of now, no plans to revise utility tariffs have been publicly announced. Additionally, the NBU has revised its GDP growth forecast for 2024 downward to 3% y/y from the previously projected 3.6%, in light of the severe damage to the energy system following recent Russian air raids.

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