The National Bank of Ukraine (NBU) is reducing its discount rate, the rate by which banks pay to borrow money from the central bank, to 22%, NBU Chairman Andriy Pyshnyy said on July 27.
“A rapid slowdown in inflation and a stable situation on the foreign exchange market enables the beginning of a cycle of lowering the discount rate,” Pyshnyy explained.
“Taking into account the improvement of inflation expectations and the forecast of a further slowdown in inflation, the current and projected rate reduction is consistent with the preservation of the attractiveness of hryvnia savings. This is an important element of ensuring exchange rate stability by easing currency restrictions and transitioning to greater exchange rate flexibility. At the same time, lowering the discount rate against the background of maintaining macro-financial stability will support the recovery of the economy.”
Annualized consumer inflation slowed from more than 26% at the beginning of the year to 12.8% in June, which exceeded the NBU’s expectations.
Both the comparison base and supply factors played an important role in the drop, especially the saturation of the food and fuel markets, and the decrease in global energy prices.
Taking into account the favorable dynamics of the first half of the year, the NBU significantly improved its inflation forecast for this year — from 14.8% to 10.6%.
The next review of the accounting rate will take place on September 14.
The discount rate was increased from 10% to 25% in June 2022. Since then, the NBU has left it unchanged eight times.
At the end of June, the NBU reported that the discount rate could be lowered by July-September 2023.