Most members of the National Bank's Monetary Policy Committee see room for additional policy rate cuts next year.
As Ukrinform reports, this was reported by the press service of the National Bank following a discussion among members of the Monetary Policy Committee.
“Most participants in the discussion see room for additional policy rate cuts in 2024. In their opinion, if the macroeconomic situation develops close to the baseline scenario and the implementation of key negative risks can be avoided, the NBU will be able to continue the cycle of easing interest rate policy. An important prerequisite for this, in particular, is the restoration of the rhythm of the flow of external assistance,” the statement says.
This issue must be resolved, because key partners declare a permanent position on supporting Ukraine. At the same time, members of the Commission agreed that in conditions of war the NBU must act carefully so as not to increase macro-financial stability. To maintain exchange rate stability and moderate inflation, it is necessary to continue to ensure the relatively high attractiveness of hryvnia instruments for savings. Given this, there is little room for further reduction in the discount rate. Several panelists noted that this is a maximum of 1-2 percentage points through 2024.
According to several other members of the Commission, it would be more expedient to keep the discount rate unchanged over the next year. Bank rates cover the expected level of inflation, but without a significant reserve. This is evidenced by the slowdown in the growth rate of time deposits of the population in October, as well as the increase in the level of their dollarization against the backdrop of precautions associated with the transition to managed exchange rate flexibility.
In addition, the NBU must take into account the adaptive nature of households’ inflation expectations. The current improvement in their expectations is primarily due to favorable exchange rate dynamics, a rapid slowdown in inflation and cheaper prices for some food products under the influence of temporary factors.
At the same time, the NBU forecast for 2024 provides for a moderate acceleration of inflation, and, therefore, a certain deterioration in inflation expectations is not excluded.
Members of the KMP believe that uncertainty with international funding may provoke additional tension in the information field and worsening sentiment. In such conditions, the risk of a decrease in the real yield of hryvnia instruments increases, which may lead to a reorientation of investors to savings in foreign currency. This will increase pressure on international reserves and the hryvnia exchange rate. Taking this into account, next year it is advisable for the NBU to suspend the cycle of reducing the discount rate in order to maintain the proper attractiveness of hryvnia instruments for savings.
As reported, the Board of the National Bank of Ukraine decided to set the discount rate at 15% from December 15, 2023.
