The key policy rate in Ukraine may drop to 11-12% by the end of the year.

Some members of the Monetary Policy Committee of the National Bank have not ruled out a lowering of the key policy rate to 11%–12% this year. This rate will be consistent with expected moderate inflation in the coming years and should not lead to a loss in attractiveness of hryvnia assets and unbalancing of expectations.

“In the conditions of a longer preservation of security risks, the economy will need additional incentives for recovery, and a more active reduction of the discount rate will make it possible to revive lending,” the NBU notes.

In contrast, most committee members expect the discount rate to decrease to 13-14%. In their opinion, the scope for easing interest rate policy is limited, considering the acceleration of inflation, the persistence of high-security risks, and risks related to the rhythm and volumes of external financing.

Also, plans to continue FX liberalization are an additional factor that will limit the size of the step to reduce the discount rate. A more significant reduction in the discount rate can be considered only under the condition of significant positive changes in international financial aid.