The National Bank of Ukraine (NBU) reduced the discount rate to 13.5%, i.e. by one percent. It will be effective from April 26.
This was reported by the press service of NBU.
The Board of the National Bank made this decision in view of easing the actual and expected price pressure and reducing risks for the receipt of international financial support. In addition, the board took into account the need to support the development of lending and recovery of the economy without additional risks for price and financial stability.
During the first quarter of 2024, consumer inflation slowed faster than expected. In March, it decreased to 3.2% y/y. The NBU predicts a moderate acceleration of inflation this year to 8.2% (this is an updated and improved forecast).
In March, Ukraine received approximately $9 billion from international partners, and in April — the second tranche from the EU in the amount of €1.5 billion. This year, Ukraine can count on $38 billion in foreign budget aid.
At the same time, the yield on bank deposits and domestic government loan bonds exceeds inflation.
Rates on overnight deposit certificates and three-month deposit certificates are reduced by one more percentage point — to 13.5% and 16.5%, respectively. The NBU reduced interest rates on refinancing loans by two percentage points to 17.5%.
"The National Bank of Ukraine foresees a series of currency liberalization steps in the coming weeks. The basic scenario of the NBU forecast foresees a reduction of the discount rate to 13% in the current year," the press service added.
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 interest 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.