Inflation in Ukraine is decreasing faster than expected and will continue to decrease, the regulator assured.
The National Bank decided to keep the discount rate at 25% per annum. At the same time, a set of additional measures will be introduced to increase competition among banks for fixed-term deposits of the population by lowering the rate of overnight deposit certificates from 23% to 20% and benefits for banks that attract funds for a period of three months or more. This was reported on the regulator’s website on Thursday, March 16.
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“To further reduce inflation, protect hryvnia savings from inflationary depreciation and maintain exchange rate stability, the Board of the National Bank decided to keep the discount rate at 25% and introduce a set of additional measures to increase competition among banks for fixed-term deposits of the population,” the message said.
The NBU has kept the rate at this level since June 2, 2022. Then the regulator decided to raise the discount rate from 10% immediately to 25%.
The National Bank noted that inflation, which reached 24.9% in annual terms in February, is decreasing faster than expected and will continue to decrease, including due to measures taken by the regulator.
“Further growth in the attractiveness of time deposits in Hryvnia against the backdrop of reduced pressure on the cash segment of the foreign exchange market encourages depositors to increase their savings in the national currency. This will strengthen the stability of foreign exchange market and protect international reserves, which will support further improvement in the exchange rate and inflation expectations,” said the NBU.
The central bank added that the reduction in inflationary pressure will also be facilitated by the decline in global inflation, including due to cheaper energy sources and the effect of the high base of comparison of the first year of a major war. Price growth will also be limited by relatively subdued consumer demand.
“At the same time, the duration and intensity of the hostilities and further destruction of critical infrastructure facilities remain a major risk for inflationary dynamics. The risks are also related: additional budget needs and significant quasi-fiscal deficits in the energy sector; complicating or stopping the work of the “grain corridor,” the National Bank said at the same time.
Another risk is the premature easing of monetary policy by leading central banks in response to increased threats to financial stability, which could lead to a slower decline in global inflation, as well as increasing volatility in global financial markets.
The report emphasizes that an important condition for ensuring macro-financial stability is the rhythmic flow of international financing, including under the expected new program with the IMF.
“In the near future, the IMF expanded financing program is expected to be opened. Considering the potential receipts from international partners, including the IMF, and the further activation of the domestic debt market, the budget needs in 2023 will be fully financed without monetization of the budget deficit. For its part, the National Bank will be able to continue to maintain a sufficiently high level of international reserves and balance the foreign exchange market.
The discount rate equals the economic value of money. At this rate, the NBU provides funds to commercial banks, which, in turn, lend to individuals and legal entities. Thus, the discount rate affects the value of credit resources. An increase in the discount rate indicates an increase in the level of inflation and a decrease in the rate of economic growth in the country.
Earlier, the State Statistics Service announced a decrease in inflation in February. Food and non-alcoholic beverage prices rose 1.5% last month.
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Source: korrespondent
I’m Liza Grey, an experienced news writer and author at the Buna Times. I specialize in writing about economic issues, with a focus on uncovering stories that have a positive impact on society. With over seven years of experience in the news industry, I am highly knowledgeable about current events and the ways in which they affect our daily lives.