The Board of the National Bank of Ukraine has reduced the discount rate from 14.5% to 13.5% from 26 April 2024. This was reported by the NBU, Komersant ukrainskyi reports.
The National Bank believes that there is currently an easing of actual price pressure, as well as a reduction in risks to international financial support. Under these conditions, a cut in the key policy rate will help support lending and economic recovery without additional risks to price and financial stability.
“Along with the key policy rate cut, the NBU is also reducing interest rates on overnight and three-month certificates of deposit by 1 pp to 13.5% and 16.5%, respectively. In addition, the NBU is cutting interest rates on refinancing loans more significantly – by 2 pp to 17.5%. In the context of the interest rate policy easing cycle, it is no longer advisable to maintain a significant difference between the refinancing rate and the discount rate,”
– the NBU said.
In the first quarter of 2024, consumer inflation slowed faster than the NBU expected. In March, it slowed to 3.2%, which was below the NBU’s forecast.
“The NBU has improved its inflation forecast to 8.2% for 2024 and expects it to be fixed in the target range of 5% ± 1 pp over the coming years,”
– the NBU said in a statement.
The NBU expects inflation to return to the target range of 5% ± 1 pp over the coming years and remain within it. This will be facilitated by the gradual normalisation of economic conditions, the easing of external inflationary pressures, and consistent monetary policy measures by the NBU. Inflation is expected to slow to 6% by the end of 2025, and to 5% by 2026.
The NBU also forecasts a further recovery in economic activity, but the forecast for real GDP growth has been downgraded due to the effects of Russia’s large-scale attacks on Ukraine’s energy infrastructure. The economy is expected to grow by 3% in 2024 and by 4.5-5% in 2025-2026.
A full-scale war remains a key risk to inflation and economic development, the NBU believes.
What is the key policy rate?
The key policy rate is one of the key indicators in finance, especially in monetary policy. It is used by central banks to regulate money circulation and credit conditions in a country.
The key policy rate determines the cost of borrowing money for commercial banks from the central bank. When the key policy rate rises, it makes borrowing more expensive for banks, which can reduce the amount of money in circulation and reduce loan repayments. In contrast, a decrease in the key policy rate usually leads to an increase in lending and supports economic growth.
Central banks usually set their key policy rate taking into account factors such as inflation, employment, economic conditions, and monetary policy objectives. The key policy rate is one of the main tools that central banks use to achieve their objectives of economic stability and the health of the country’s financial system.