The National Bank lowered the discount rate for the first time since the beginning of the invasion

The National Bank of Ukraine (NBU) changed the discount rate for the first time since June last year and lowered it from 25% to 22%. Also, this is the first rate cut since February 24, 2022.

The regulator predicts a further slowdown in inflation and faster economic growth by the end of 2023, NBU Chairman Andriy Pyshnyi informed.

NBU explains that the sharp slowdown in inflation and the stable situation on the foreign exchange market contributed to the rate reduction. From the beginning of the year to June, inflation slowed from 26% to 12.8% (in annual terms). Therefore, in its macro forecast, the regulator changed the estimate of inflation at the end of the year from 14.8% to 10.6%.

The increase in prices will slow down due to the gradual decrease in world inflation and the still rather tight monetary conditions in Ukraine, NBU notes. Also among the main factors are unchanged tariffs for most housing and communal services, exchange rate stability, saturation of the food and fuel markets, as well as a decrease in global energy prices.

At the same time, in the future, inflation will not decrease as quickly as in previous months, according to NBU. This is due to the exhaustion of the effect of the comparison base, the return of the pre-war level of fuel taxation and the June increase in electricity prices for household consumers. In addition, the Russian terrorist attacks in the south of Ukraine, in particular the blowing up of the Kakhovka HPP, will have a certain negative impact.

So NBU again revised its forecast for Ukraineʼs GDP growth in 2023 — from 2% to 2.9%.

The main risks for the economy remain a longer duration of the war, a decrease in the volume or loss of the rhythm of international aid, the renewal of a significant shortage of electricity and new large-scale terrorist attacks, which will limit export logistics, as well as the economic potential of the country in general.

• For the first time, the discount rate was increased from 10% to 25% in June 2022. Since then, the NBU has left it unchanged eight times.