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National Bank of Ukraine Cuts the Discount Rate

National Bank of Ukraine Cuts the Discount Rate For the Second Time In 2013

Kyiv, August 13 - The Board of the National Bank of Ukraine has adopted the decision to cut the discount rate from 7% per annum to 6.5%, effective from 13 August 2013.

This is the second time that the discount rate has been lowered this year and it is the result of a set of consistent measures taken to meet the target set by the National Bank of Ukraine to promote sustained economic growth. It is worthy of note that the discount rate was cut by 0.5 percentage point to 7% per annum, effective from 10 June 2013.

"There are many rationales behind the scheduled adjustment of the discount rate. Firstly, CPI inflation has remained at a low level over the course of the year, with annual CPI inflation standing at zero in July 2013. Secondly, market expectations have brightened up. According to the survey results, in the second quarter of 2013 inflation expectations have reached an all-time low since 2006," noted Director of General Department of Monetary Policy Olena Shcherbakova. "In addition, banks' resource base has expanded, with national currency funds being the main contributors to the deposit growth. Over the first seven months of 2013, deposits in the national currency have surged by 17.8% amid a 0.6% decline in the foreign currency deposits. Finally, interest rates on loans have been on a gradual downward trend. In July 2013, the average weighted interest rate on loans in the national currency declined to 15.7 % down from 17.6% in December 2012”, added Ms. Olena Shcherbakova.

Ms. Olena Shcherbakova forecasts that interest rates on loans will decline further. According to her, this will make loans more accessible to the economic agents, thus underpinning economic growth, which is the prerequisite for raising the standard of living of Ukrainian citizens.

Lowering the discount rate is viewed as part of the State Program of Economic Revitalization for 2013-2014, which is being implemented jointly by the Government and the National Bank of Ukraine.

For reference:The discount rate represents the base rate for the National Bank’s other interest rates. In particular, it is the rate at which resources are offered at the weekly tenders of maintaining banks’ liquidity

The discount rate serves as a benchmark for measuring the price of money. By lowering the discount rate, the National Bank of Ukraine signals its intention to maintain market trends toward decrease of the loan costs.

ENDS

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