On June 1, the Central Bank announced a record increase in the discount rate since 2015 from 10% to 25%.
The National Bank does not plan to raise the discount rate again, the regulator’s press service reported on Monday, June 13.
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“Most members of the CMP (Monetary Policy Committee) hope that the increase in the discount rate to 25% will be the last in this cycle, and in the future, as the situation on the front and the economy improves, the NBU will will be able to return to the simplification of monetary policy, “the statement said. .
It was learned that seven of its 10 members supported the discount rate increase from 10%to 25%, two more for 24%, and one for 20%.
“During the discussion, ILC members came to the conclusion that maintaining exchange rate stability in the current environment is the key to price and financial stability., Accordingly, the main tool for suppressing inflationary pressure and sustainability. of sustainability financial system, “said the NBU.
The central bank believes the economy is not yet ready for the return of floating exchange rates. Appropriate macroeconomic prerequisites must be in place for this. In particular, increase the ability of the foreign exchange market to self -balance. Otherwise, the correction of the official exchange rate will only create unnecessary shocks for economic agents, worsen expectations, change the scale of prices in the country to an appropriate percentage, but the pressure on Hryvnia and international reserves will continue.
Noted that under current conditions, the NBU should return to an active interest rate policy and restore the attractiveness of hryvnia assets as investment and savings instruments.
Potential effects from the discount rate increase include an increase in the cost of servicing public debt due to rising government bond rates and the cost of servicing government programs to support lending. “However, this impact on budget expenditures in 2022 is assessed as insignificant (the main burden is in 2023) and can be offset by large volumes of borrowings in the market,” the NBU said.
Special attention was paid to the impact of the increase in the discount rate on the balance sheets of banks due to the potential re -evaluation of securities in the portfolios of banks, an increase in interest payments on loans in refinancing and bank income from certificates of deposit. “The impact of the re -evaluation of securities will extend over time, and the structural liquidity surplus of the banking system will make banks more likely to be beneficiaries for the discount rate increase, rather than vice versa. The impact of increase in the discount rate on lending in current conditions will be limited, “said the central bank.
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In his opinion, the amount of loans depends mainly on the actual amount of funding to banks, which today is still very low and will not change quickly due to the low cost of previously attracted deposits.
Second, the NBU pointed out that most new loans are now issued under state programs, so the preferred terms for such borrowers will continue in the future.
Discussion participants also agreed that for a tangible revival of interest on hryvnia assets, interest rates on them must rise to a level that exceeds the inflationary expectations of the economic agents in the medium term, that is, up to 24-25%. “This will create motivation for depositors and investors to adjust the high yield on hryvnia instruments until the NBU enters a cycle of rate cuts. A slight increase in the discount rate is unlikely to change of the situation.Market participants expect further rate increases and generally postpone decisions on investments and savings until they consider that the yields of hryvnia instruments have reached the maximum level, “explains the National Bank.
Earlier, the NBU explained the decision to raise the discount rate from 10% to 25% by saying that it will help maintain a stable hryvnia exchange rate and protect the income and savings of citizens from in depreciation.
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Source: korrespondent
I am Dylan Hudson, a dedicated and experienced journalist in the news industry. I have been working for Buna Times, as an author since 2018. My expertise lies in covering sports sections of the website and providing readers with reliable information on current sporting events.