The National Bank of Ukraine (NBU) reduced the discount rate to 13% — by half a percentage point. The new rate will be effective from June 14.
This was reported by the press service of the NBU.
Such a decision was made by the board of the National Bank, taking into account the current balance of risks, restrained inflation indicators and improved inflation expectations.
The National Bank of Ukraine explained that another reduction in the discount rate will protect hryvnia savings from inflation and contribute to the revival of lending, which is important for the economy.
In April, inflation remained unchanged, in May it slightly increased to 3.3% in the current account. Growth rates were lower than the NBU expected. Core inflation decreased to 4.4%, in line with the forecast. A moderate acceleration of inflation is expected in the future.
To maintain control over inflation expectations and keep it within the target range of 5% ± 1 vp. p. The NBU will continue to protect hryvnia savings from depreciation, cover the structural deficit of the currency and smooth out excessive exchange rate fluctuations.
International aid and internal mobilization of finances will help ensure significant expenditures from the state budget. In the coming weeks, Ukraine may receive $2.2 billion if the Board of Directors of the International Monetary Fund approves it during the fourth review under the Extended Fund Facility (EFF) program. And also €1.9 billion from the EU.
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 influences 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 slows 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.