The NBU announced a sharp reduction in the discount rate

The National Bank sees the possibility of a further reduction in the discount rate at the next meeting.

The National Bank of Ukraine lowered the discount rate to 16% from 20%, where it has been kept since September 14. This was reported on the regulator’s website on Thursday, October 26.

“The Board of the National Bank of Ukraine decided to set the discount rate at 16% from October 27, 2023, if it is compared to the rate on overnight certificates of deposit (CD). Thus, the National Bank is modernizing the operational design of this financial policy according to the “lower bound” system,” – said the message.

Rates for other NBU transactions in banks are set as follows:

• the rate for three months DS will be equal to “discount rate + 4 pp” (20%);

• the rate on the refinancing loan will be equal to the “discount rate + 6 pp” (22%).

Because of this, in fact, the levels of rates on NBU transactions in banks will remain unchanged, notes the National Bank.

“The modernization of the operational design of monetary policy will strengthen the signaling role of the discount rate in conditions of structural excess liquidity. Such changes, in particular, will allow the NBU to maintain short-term hryvnia interbank rate close to the discount rate. As a result, the NBU’s ability to influence the expectations of economic agents and the motives of their economic behavior will increase “, said the message.

At the same time, keeping the rates unchanged in NBU transactions with banks is consistent with the need to maintain the attractiveness of Hryvnia instruments, which is important for ensuring moderate inflation and exchange rate stability on the forecast horizon, the regulator said.

“In the absence of signs of deterioration in the balance of risks, as well as the successful adaptation of market participants to the new monetary regime, the NBU sees the possibility of a further reduction in the discount rate at the next meeting,” the National Bank added.

Thus, the NBU continued the rate reduction cycle, which began in July after a one-year break and kept the rate at 25%.

The discount rate is equal to the economic value of money. At this rate, the NBU provides funds to commercial banks, and they lend to individuals and legal entities. Consequently, the discount rate affects the value of credit sources. 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.

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