The National Bank left the discount rate at 15% and improved the inflation forecast

The National Bank of Ukraine left the discount rate at 15% and improved the forecast for inflation in 2024.

This was announced at a briefing on January 25 by NBU Chairman Andriy Pishnyi.

At the end of 2023, price growth slowed significantly — in November and December, inflation was 5.1%. This was facilitated by high harvests and a decrease in global energy prices. In addition, as before, there is a moratorium on tariff increases for some housing and communal services services.

In 2024, the NBU expects an acceleration of price growth, but if in the previous forecast annual inflation was 9.8%, now the regulator expects 8.6%. The depletion of the effects of last yearʼs high harvests will have a negative impact. Prices will also be pressured by the further recovery of consumer demand and the transfer of business costs to prices, in particular due to security risks and salary increases.

Provided large amounts of international aid are maintained, the Ukrainian economy will grow in 2024, thanks in particular to large budget expenditures. The NBU did not change its forecast for this year — plus 3.6% of GDP.

International aid will decrease somewhat this year, but this was expected, the National Bank indicates. According to the base scenario, the regulator expects $37 billion in financial assistance (in 2023 it was $42.5 billion). This help from partners will remain the main source of capital inflow into the country in the future, according to the NBU.

The key risk for the economy, as before, remains the war, as well as the emergence of additional budgetary needs, damage to the port and energy infrastructure, the continuation of partial blocking of borders and the deepening of negative migration trends.

What is the discount rate

The accounting rate is one of the main indicators of the economy. This is the percentage at which the NBU provides funds to banks and, accordingly, below which it is unprofitable for commercial banks to give loans to clients. Thanks to the discount rate, the NBU affects inflation (price growth).

A decrease in the rate makes loans more accessible (because the interest on them becomes lower), in connection with which banks begin to issue more money, there is more of it in the economy, and when there is more money, inflation gathers momentum. In this case, there is less money in deposits, and more money in hand — accordingly, people spend more.

But higher inflation actually leads to a devaluation of the hryvnia, because for the same amount, with rising prices, you can buy fewer goods.

And all this works in the opposite way — when the rate rises, loans and deposits become more expensive, they stimulate the population to save more. As a result, there is less money in the economy, and inflation is slowing down.

• At the beginning of the war, the National Bank decided not to change the discount rate, leaving it at 10%, but on June 2, 2022, the NBU sharply increased the rate to 25%, which became one of the most drastic increases in history.
• On July 27, the National Bank of Ukraine lowered the discount rate from 25% to 22% for the first time since June 2022 due to the slowdown in inflation and the relatively stable situation on the foreign exchange market. On September 14, the regulator continued the rate reduction cycle and changed it from 22 to 20%. In October, the rate decreased to 16%, and in December — to 15%.