The Central Bank points out that the potential to lower the discount rate in the monetary policy horizon is significantly limited by the negative consequences of the war.
The Monetary Policy Committee of the National Bank of Ukraine (NBU) believes that the regulator can lower the discount rate by the end of 2023. This is expected close to the fourth quarter, but it all depends on the relaxation of currency restrictions. This is evidenced by the results of the discussion posted on the regulator’s website on April 26, 2023, in which the NBU board agreed to keep the discount rate at 25%.
Therefore, most of those participating in the discussion believe that by the end of 2023 the NBU can reduce the discount rate to 21%. The best time to start the rate cut cycle is assumed to be the fourth quarter.
“Such timing is determined by the priority of the task of easing some of the currency restrictions. In the initial phase of currency liberalization, a fixed discount rate will be an important tool for managing expectations and risks. Only the NBU will have sufficient evidence in the context of loosening administrative procedures. The controllability of exchange rate and inflationary processes could initiate the cycle of lowering accounting rates without threatening macro-financial stability.
At the same time, the potential to lower the discount rate in the monetary policy horizon is significantly limited by the negative consequences of war. Reason: While Ukraine’s production capacity, exports and return of forced migrants will need a significant recovery period, the need for imports will be significant during the recovery phase.
“Under these circumstances, maintaining exchange rate stability will require the NBU to pursue a consistent policy to ensure high attractiveness of hryvnia savings and reduce pressure on international reserves. Taking into account the expected international aid to close the current account deficit in 2024. The NBU will be able to continue to lower the discount rate. , but that will be quite slow,” he said.
It is recorded that the discount rate will be 18% until the end of 2024.
Discount rate – what is it
A tool by which the Central Bank of Ukraine influences inflation. The regulator raises the rate to keep prices low or lowers it to increase economic activity.
Before the large-scale invasion of Ukraine by the Russian invaders, the discount rate was fixed at 10% and six months ago at 6%. In June last year, the NBU increased the rate to 25%.
Previously Focus He wrote that the increase in the NBU rate should stimulate an increase in the cost of resources, that is, it should affect deposit rates. More Focus He reported that in 2023 the Central Bank may decide to abandon the fixed exchange rate in the interbank foreign exchange market.
Source: Focus
John Holton is a seasoned author and journalist, known for his expertise in economics. He currently works as a writer at 24 news breaker, where he provides readers with in-depth analysis and commentary on the latest economic developments. With a background in finance and a talent for explaining complex economic concepts in a clear and accessible way, John’s writing is a must-read for anyone interested in staying informed about the economy.