Ukraine's central bank slashed its benchmark discount rate by 500 basis points to 22.0 percent to help boost economic growth in light of "a steady reduction in the risks to price stability," but described the cut as "quite restrained" as its also took into account the need to ensure further disinflation.
The National Bank of Ukraine (NBU) has now cut its rate by a total of 800 basis points after raising the rate by a total of 2,350 points from April 2014 through March this year in response to accelerating inflation from a plunge in the value of its currency, the hryvnia.
The central bank said its easing should help ensure that it meets its inflation target of 5.0 percent and to support the country's gradual economic recovery that has been observed in the third quarter.
For 2016 the central bank forecast Gross Domestic Product growth of 2.4 percent and a more detailed forecast will be published in the Oct. 1 inflation report.
In August Ukraine's inflation rate eased to 52.8 percent, continuing a drop since a year-high of 60.9 percent in April, but the central bank said core inflation was close to zero in July and August, attributing this to a prudent monetary and fiscal policy that made it possible to reduce demand inflation, a stabilization of the currency market and lower inflation expectations.
In addition, scheduled increases in administrative prices and salaries will impact inflation that is forecast to end 2016 at 12.0 percent.
Ukraine's hryvnia plunged by almost 50 percent against the U.S. dollar in 2014 following the outbreak of armed conflict in Eastern Ukraine and the occupation of the Crimean peninsula by pro-Russian forces.
But a cease-fire agreement in late February, rate hikes by the central bank and administrative measures have helped stabilize the hryvnia, which was trading at 21.6 to the U.S. dollar today,
up from a low of 33.7 in late February but still down 27 percent this year.