The National Bank has raised the rate by two and a half times — up to 25%

Oleg Panfilovych

The National Bank of Ukraine raised the rate from 10% to 25%.

This was reported by the NBU press service.

It explained that the goal of the move is to protect incomes and savings in hryvnia, increase the attractiveness of hryvnia assets, reduce pressure in the foreign exchange market and strengthen the National Bankʼs ability to ensure exchange rate stability and curb inflation during the war.

The National Bank stressed that after the start of hostilities, the threats of dollarization of the economy increased. Expectations of citizens and businesses for the devaluation of the hryvnia are sensitive to the development of the military situation. As a result, the National Bankʼs foreign exchange interventions increased from $2 billion on average in March-April to $3.4 billion in May. Also during May, the difference between the cash market and the official one increased, which exacerbated the negative effects on the economy due to the multiplicity of exchange rates.

The NBU expects that the government and banks will adequately respond to the change in the discount rate by raising interest rates on bonds and deposits. This will increase the attractiveness of hryvnia assets and protect citizensʼ savings and incomes from inflation. Increasing the attractiveness of hryvnia savings will help reduce demand in the foreign exchange market. Also, increasing rates for domestic government bonds will reduce the need to print more money.

The National Bank also believes that an important step in balancing fiscal and monetary policy should be the return of import taxes. On the one hand, this will provide additional revenues to the state budget, and on the other hand, will strengthen incentives for domestic producers and reduce the pressure on Ukraineʼs international reserves.

What is the discount rate?

This is the main tool used by the NBU to regulate inflation. The discount rate affects the cost of loans. If the interest rate is reduced, the cost of loans should also decrease.