NBU raised discount rate from 10% to 25%

For the first time since the full-scale Russian invasion, the National Bank changed the discount rate and decided to raise it from 10% to 25%.

As Censor.NET reports, this was reported on the NBU website.

"After considering several scenarios, the National Bank decided to raise the discount rate by 15 percentage points to 25%," said NBU Chairman Kyrylo Shevchenko. According to the NBU, a slight increase in the key rate would not have a significant impact on the financial and economic system due to the limited effectiveness of the monetary transmission mechanism during the war.

It is believed that this would create expectations of further increases in the discount rate and, accordingly, the waiting position of depositors and low interest in hryvnia assets. Also, in order to revive interest in hryvnia assets, their yields should exceed expected inflation rates.

The National Bank expects that raising the discount rate to 25% will be sufficient to ease the pressure on the foreign exchange market and stabilize inflation expectations, which in the long run will create the preconditions for the transition to a cycle of lowering the discount rate.

In addition, the regulator has expanded the corridor of interest rates on monetary transactions with banks to create additional space for the revival of the interbank market. From June 3, the rate for refinancing loans will be equal to the discount rate plus 2. n., and for certificates of deposit - rates minus 2 in. n.

"The National Bank expects that the government and banks will adequately respond to the change in the discount rate by raising interest rates on IGLBs and deposits. The proper response of market rates to decisions on the discount rate will increase the attractiveness of hryvnia assets, including IGLBs ", - explains the regulator.

Read more: Memorandum of Cooperation was signed between central banks of Ukraine and Poland

The NBU believes that the establishment of market rates for IGLBs will also increase demand for them and reduce the need for emission financing by the National Bank. Increasing the attractiveness of hryvnia savings will help reduce demand in the foreign exchange market, which will avoid further accumulation of imbalances, reduce pressure on international reserves and gradually solve the problem of multiple exchange rates.

The regulator stressed that in order to balance fiscal and monetary policy, it is also necessary to return taxes on imports, as this will provide additional budget revenues, increase incentives for domestic producers and reduce pressure on international reserves.