The National Bank of Ukraine, which last cut its rate in March 2012, said the new rate would be effective from today, June 10, following a board meeting on June 6.
Ukraine has suffered from deflation in the last 12 months with the headline inflation rate at minus 0.4 percent in May compared with minus 0.8 percent in April.
In 2012 inflation averaged 0.6 percent. In 2013 and 2014 the central bank targets consumer price inflation in a range of 4.0 to 6.0 percent and between 3.-0 and 5.0 percent in 2015.
"Seeking to reinforce already prevailing positive trends in the monetary sphere, the National Bank of Ukraine has taken this step, thus providing impetus to economic growth," the central bank said, adding the cost of funds has been on a downward trend while the banking sector has witnessed steady deposit growth with funds in national currency accounting for most of the growth.Ukraine's economy expanded by 0.6 percent in the first quarter from the fourth, reversing an 0.8 percent quarterly decline, for an annual contraction of 1.1 percent, less than the 2.5 percent annual fall in the fourth quarter and the 1.3 percent drop in the third quarter of 2012.
In 2012 Ukraine's Gross Domestic Product grew by 0.2 percent and the International Monetary Fund estimates it will stagnate this year.