The National Bank of Ukraine (NBU) has reduced the discount rate from 22 to 20%, the NBU press service reports. This is the second rate reduction since the start of the full-scale invasion.
The further slowdown of inflation and the ability of the NBU to ensure exchange rate stability allow the cycle of interest rate reductions to continue while maintaining the sufficient attractiveness of hryvnia savings, the NBU explains.
Annual inflation slowed to 8.6% in August. The price dynamics turned out to be better than the NBU expected, primarily due to an increase in the supply of food products. Good harvests contributed to lower prices for cereals, flour, vegetables and some fruits.
The general tendency to lower inflation will continue, but the potential for its rapid slowdown is almost exhausted, the NBU notes.
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 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 on deposits, and more "on hand" — accordingly, people spend more.
But higher inflation actually leads to 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.