The National Bank of Ukraine decided to keep the discount rate at the level of 25% per annum and to introduce a set of additional measures to strengthen the competition of banks for term deposits of the population.
By data NBU, inflation in Ukraine is slowing down for the second month in a row – in February to 24.9% in annual terms. The decline in inflation started earlier and is happening faster than the National Bank predicted. This, in particular, was facilitated by an increase in the supply of food and fuel, the rapid recovery of the energy system after the Russian attacks, and weaker consumer demand.
The growth of consumer prices is also largely restrained due to the fixation of the official exchange rate of the hryvnia and tariffs for housing and communal services.
“Previous measures of the National Bank, including keeping the discount rate at 25%, increasing mandatory reserve standards, introducing new deposit products, as well as calibrating currency restrictions contributed to the strengthening of the hryvnia in the cash segment of the market. This affected the improvement of inflation and exchange rate expectations. The complete cessation of emission financing of the budget from the beginning of the year also had a positive impact. Despite this, inflation still remains high, and pressure from the side of business costs is significant,” the NBU said in a statement.
It is noted that the further increase in the attractiveness of time deposits in hryvnia against the background of decreasing pressure in the cash segment of the foreign exchange market will encourage depositors to increase savings in the national currency. This will strengthen the stability of the foreign exchange market and protect international reserves, which will support further improvement in exchange rate and inflation expectations.Play Video
An important prerequisite for ensuring macro-financial stability is the rhythmic inflow of international funding, including under the expected new program with the IMF.
According to the NBU, interest rates on hryvnia term deposits will continue to rise. Banks that most actively raised rates in recent months were able to improve the term structure of the deposit base. However, in the largest banks, which, in particular, enjoy the non-competitive advantages of obtaining liquidity, hryvnia rates remain insufficiently attractive for depositors in view of the high level of current and expected inflation. As a result, a significant amount of public funds is stored in current accounts. This generates additional risks for macro-financial stability, especially if administrative restrictions are further eased.