The National Bank of Ukraine (NBU) kept the discount rate at the level of 25% — it has remained unchanged since June last year. The NBU also improved its macroeconomic forecast for 2023 — the countryʼs GDP will return to growth, and inflation will slow down.
Chairman of the National Bank of Ukraine Andriy Pyshnyi reported this at the briefing.
According to him, keeping the rate at 25% will support the effects of previous measures to increase the attractiveness of hryvnia assets. It will also ensure the stability of the foreign exchange market and create the prerequisites for maintaining a stable trend of reducing inflation and easing currency restrictions.
The National Bank indicates that since the beginning of the year, inflation decreased faster than expected; in March, the rate of growth of consumer prices slowed to 21.3% in annual terms. This happened, in particular, thanks to the strengthening of the hryvnia cash rate.
A sufficient supply of food and fuel and a quick recovery of the energy system from the consequences of Russian terrorist attacks contributed to the easing of inflationary pressure, the regulator points out.
However, due to the war, inflationary pressures remain significant, in particular due to the production costs of businesses and difficulties in conducting activities and setting up logistics chains.
According to the NBUʼs forecast, this year inflation will be 14.8%, and next year it will return to a single-digit level.
The NBU also improved forecasts for the growth of the Ukrainian economy in 2023. If in the previous forecast there was a symbolic growth of GDP by 0.3%, now the regulator predicts +2% by the end of the year. Such a forecast is based on the expectation that there will be no significant shortages of electricity in the future, "with the exception of local and situational shortages in the second half of the year."
An increase in budget expenditures against the background of significant amounts of international financial aid should also have a positive effect — this will support economic activity and consumption, the NBU press release says.
What is the discount rate and what does it affect
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 "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 direction — 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.