The National Bank lowers the discount rate to 14.5%

From March 15, the National Bank of Ukraine (NBU) will reduce the discount rate to 14.5%. Currently, it is at the level of 15%.

The press service of NBU writes about this.

This decision was made by the board of the National Bank, taking into account the further slowdown of inflation, the preservation of a stable situation on the foreign exchange market and positive developments in the receipt of foreign aid.

NBU notes that a 0.5% reduction in the discount rate will support the recovery of the economy without threatening macro-financial stability. The situation on the foreign exchange market will remain under control, inflation will be moderate, and the yield on hryvnia instruments for savings will be attractive.

Inflation slowed faster than expected. In February, it decreased to 4.3% in annual terms. The situation on the foreign exchange market remained stable. In the future, inflation will be moderate, but it will slightly accelerate in the second half of the year.

Meanwhile, the yield on bank deposits and bonds of domestic government loans of Ukraine exceeded the expected inflation, thanks to which interest in hryvnia savings remained. Investments of Ukrainians in domestic goverment bonds and deposits grew steadily.

The National Bank plans to maintain operations with three-month deposit certificates (DC) to stimulate competition among banks for depositors. The rate for this instrument will decrease to 17.5% from March 15, and the rate for refinancing loans will decrease to 19.5%. The rate for overnight deposit certificates will remain at the accounting level.

What is the discount rate

The accounting rate is one of the main indicators of the economy. This is the percentage at which 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, 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 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, 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%.