NBU Postpones Decision On Discount Rate

The National Bank of Ukraine (NBU) postponed the decision on the size of the discount rate.

The NBU has said this in a statement, Ukrainian News Agency reports.

A scheduled meeting of the monetary policy committee was held at the National Bank.

The main attention of the discussion was focused on the assessment of the current economic situation and scenarios for further developments.

"At the same time, it was decided to postpone consideration of the issue of changing the discount rate. Under the current conditions, the impact of the discount rate on the functioning of the monetary and foreign exchange markets is limited. Given this, it will continue to remain unchanged - at the level of 10% - until the channels of monetary transmission are restored," the statement said.

It is noted that the consequences of a full-scale Russian invasion of Ukraine will increase inflationary pressure, which will be partially contained by the measures of the government and the NBU.

In March 2022, year-on-year consumer inflation accelerated to 13.7% (from 10.7% in February).

Rising of consumer prices is primarily due to the disruption of supply chains and production processes, uneven demand, increased business costs, as well as the physical destruction of the assets of many enterprises due to the full-scale Russian invasion of Ukraine.

First of all, the price of food, pharmaceuticals and fuel has risen rapidly.

According to the estimates of the National Bank, inflationary pressure will continue in the future, primarily due to the consequences of a full-scale war.

At the end of 2022, inflation may exceed 20%, but will remain controlled.

The increase in the cost of goods and services will be due, in particular:

- to violation of production processes;

- to logistical problems due to the temporary occupation of part of the territories, the destruction of transport infrastructure and, as a result, an unevenly distributed supply across individual regions;

- to the effects of the devaluation of the hryvnia exchange rate, which occurred on the eve of the war;

- to the high cost of energies in the world, which will put pressure on the cost of fuel, goods and services with a significant share of energies in the cost price.

At the same time, price growth will be restrained by measures taken by the National Bank and the government of Ukraine.

Among them:

- temporary fixation of the hryvnia exchange rate, which restrains the probable worsening of expectations and the rise in prices of imported goods;

- reduction of taxes, including indirect taxation of imports;

• fixing of prices for housing and utility services;

- administrative regulation of prices for a number of foodstuffs and fuel.

An additional constraint will have an oversupply of certain agricultural crops due to limited export opportunities.

In addition, after the resumption of the functioning of monetary transmission channels, the National Bank will again apply the discount rate and other monetary instruments to keep inflation expectations under control and gradually reduce inflation.

As Ukrainian News Agency earlier reported, in January 2022, the National Bank raised the discount rate by 1 percentage point to 10%.

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