NBU slashes prime rate by 4 ppt to 16%, keeps "working" rates steady

UKRAINE - In Brief 26 Oct 2023 by Dmytro Boyarchuk

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Today, on October 26th, the NBU Board made an unexpected decision, slashing the prime rate by 4 ppt to 16%, effective from October 27th. While the market did anticipate a rate cut, analysts had predicted a more modest 2 ppt reduction. Despite the significant cut in the prime rate, the NBU essentially kept its "working" rates unchanged, i.e., the rates for deposit certificates (16% for overnight and 20% for three-month deposit certificates) and the refinancing rates (22%). The regulator clarified that this move was a strategic signal, intended to convey to market participants the NBU's plan to continue the easing cycle. If the FX remains stable throughout November, we might see another prime rate reduction in December. The NBU also revised its inflation forecast for 2023, lowering it to 5.8% from the previously projected 10.6%. However, the estimate for 2024 has been adjusted upward to 9.8% from the earlier 8.5% prediction. This suggests a potential for a more pronounced adjustment in the hryvnia exchange rate next year. Nevertheless, the NBU continues to emphasize its commitment to ensuring that hryvnia savings deposits remain appealing, even in the face of potential hryvnia depreciation. Another noteworthy update is that the NBU has increased its projection for external financial support in 2023 by $3 billion, raising it to $45 billion from the previously stated $42 billion. This is particularly intriguing given the ongoing complexities surrounding military and financial aid for Ukraine from the US. However, during a press briefing, the Head of the NBU expressed confidence, citing strong indications of continued financial backing from Western partners for both this ye...