The Board of the National Bank of Ukraine decided to increase the discount rate to 14.5% per annum.
This was reported by the regulatorʼs press service.
This decision is aimed at maintaining the stability of the foreign exchange market, keeping inflation expectations under control, reversing the inflation trend, and gradually slowing inflation to the 5% target.
The NBU noted that in December 2024, inflation accelerated to 12% year-on-year, which exceeded the NBUʼs previous forecast. According to the regulator, the acceleration of inflation continued in January.
Along with the discount rate, rates on overnight certificates of deposit, three-month certificates of deposit, and refinancing loans are increasing by 1 percentage point — to 14.5%, 17.0%, and 17.5%, respectively.
"The NBU will likely continue to tighten interest rate policy at the upcoming meetings of the Monetary Policy Board if signs of persistent inflationary pressure and the threat of imbalance in inflation expectations persist," the department added.
What is the discount rate?
The discount rate is one of the main indicators of the economy. It is the percentage at which the NBU lends funds to banks and, accordingly, below which it is unprofitable for commercial banks to lend to customers. Thanks to the discount rate, the NBU influences inflation (price growth).
Lowering the rate makes loans more affordable (because the interest on them becomes lower), due to which banks begin to issue more money, there is more of it in the economy, and when there is more money, inflation gains momentum. In this case, there is less money on deposits, and more on hand — accordingly, people spend more.
But higher inflation actually leads to a depreciation of the hryvnia, because with rising prices, you can buy fewer goods for the same amount.
And all this also works the other way around — when the rate rises, loans and deposits become more expensive, which encourages people 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 was one of the sharpest increases in history. Subsequently, the NBU lowered the discount rate several times, until in June 2024 it was 13%, and in December — 13.5%.