The National Bank of Ukraine (NBU), which had maintained rates since its last rate hike in March, added that a tight policy stance over the last six months had "helped firmly anchor inflation and devaluation expectations and contributed to the stabilization of the FX market, thus putting inflation firmly on a downward path."
From April last year though March the NBU raised its rate by a total of 23.50 percentage points, including16.00 percentage points this year alone.
The rate cut comes on the same day that Ukraine and about half of its main creditors agreed on a plan to restructure $18 billion of foreign debt that will include a write-off of 20 percent. Press reports said Russia, which was not in the negotiating committee, would continue to demand full repayment of a $3 billion eurobond due in December.
The NBU, which earlier this month held out the promise of lower rates by the end of this year, said it expects the disinflation trend to continue due to a stable foreign exchange market, the fading of major price increases in housing and utilities, and a slow recovery of consumer demand. In addition, a high yield of grain, vegetables and fruit should keep down food prices.
Ukraine' inflation rate eased to 55.3 percent in July from 57.5 percent in June and a 2015-high of 60.9 percent in April.
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 21.1 to the U.S. dollar today, up from a low of 33.7 in late February but still down 25 percent this year.
On July 31 the International Monetary Fund (IMF) disbursed another $1.7 billion of its 4-year $17.5 billion facility to Ukraine, saying its economy remains fragile but encouraging signs were emerging as the exchange rate had stabilized and retail banking deposits had risen.
The IMF added that Ukraine should maintain "an appropriately tight monetary policy" and build up foreign exchange reserves but the policy can be "carefully eased" as disinflation takes root.
The National Bank of Ukraine issued the following statement:
"The Board of the National Bank of Ukraine has adopted a decision to reduce the discount rate from 30% to 27%, effective from August 28, 2015.
The tight monetary policy pursued by the National Bank of Ukraine in the past six months helped firmly anchor inflation and devaluation expectations and contributed to the stabilization of the FX market, thus putting inflation firmly on a downward path. The annual Consumer Price Index has been on a downward path for the third month in a row, whereas in July Ukraine recorded deflation in month-on-month terms.
The improvement of the situation in the FX market and stabilization of inflation expectations have encouraged the inflow of deposits to the banking system.
The National Bank of Ukraine expects the disinflation trend to persist in the period ahead due to the maintenance of relative stability in the FX market, a fading wave of massive price increases in housing and utilities and a slow recovery of consumer demand. An additional factor behind the disinflation trend will be a high yield of grain, vegetables and fruit, which will contribute to the subdued food price dynamics.
Given lower inflationary risks, the Board of the National Bank of Ukraine deems it appropriate to embark on easing the monetary policy consistent with the projected decline in the annual inflation rate. However, despite the reduction in the discount rate from its current high level, the monetary policy will remain relatively tight to support the disinflation trend and shield the Ukrainian economy from external shocks currently experienced by global commodity and financial markets."
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