NBU Raises Discount Rate By 15 Percentage Points To 25%

The National Bank has raised the discount rate by 15 percentage points to 25%.

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

A change in the consumer and economic behavior of businesses and the population requires a return to the market fundamentals of managing the financial system.

At the beginning of the full-scale aggression of Russia, the National Bank of Ukraine decided to refrain from making decisions at the discount rate.

This approach was justified in the context of a significant psychological shock caused by the war.

Under such circumstances, the change in the discount rate had little chance of serving as a stabilizing factor in expectations and an incentive for holding hryvnia assets, in particular, to maintain the fixation of the exchange rate.

The activities of the National Bank in the monetary plane, first of all, were aimed at ensuring the uninterrupted functioning of the banking system and payments in the economy.

Exchange rate fixing was provided with currency restrictions to reduce demand for currency and interventions to sell currency by the National Bank to close the residual currency deficit in the interbank market.

At the same time, the gradual adaptation of the Ukrainian economy and the replacement of psychological shock with the economic logic of decision-making by business and the population require changes in approaches to monetary policy.

Currently, in the absence of proper remuneration for the maintenance of hryvnia assets, threats of dollarization of the economy and the corresponding loss of resources by the financial system have intensified.

Devaluation expectations of citizens and businesses are unstable and sensitive to the development of the military situation, in particular to operational changes at the front, and other situational factors.

As a result, National Bank interventions to sell the currency rose from USD 2 billion on average for a month in March-April to USD 3.4 billion in May.

Also in May, the difference between the cash market and the official market increased, which intensified the negative effects on the economy from the multiple exchange rate system due to restrictions on currency transactions and cross-border transfers.

Accordingly, despite the still sufficient level of Ukraine's international reserves, thanks to receipts from international partners, risks for macro-financial stability in the medium term have increased. Thus, in the absence of a significant increase in the profitability of hryvnia assets, the rapid depletion of international reserves and the accumulation of imbalances in the economy will continue.

As Ukrainian News Agency earlier reported, on October 28, 2016, the NBU reduced the discount rate from 15% to 14%, and in December 2016 and January 2017 it kept it at the level of 14%, in April 2017 it reduced it to 13%, in May 2017 it reduced it to 12.5%, in October - increased to 13.5%, in December 2017 - to 14.5%, in January - to 16%, in March 2018 - to 17%, in July 2018 - to 17.5%, in September 2018 - to 18%, in April 2019 - reduced to 17.5%, in July 2019 - to 17%, in September 2019 - to 16.5%, in October 2019 - to 15.5%, in December 2019 - to 13.5%, in January 2020 - to 11%, in March - to 10%, in April - to 8%, in June - to 6%, in March 2021 - increased to 6.5%, in April 2021 - to 7.5%, in July - to 8%, in September - to 8.5%, in December - to 9%, in January 2022 - by 1 p.p. to 10%.

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