The National Bank has kept the discount rate at 15.5%: this should ensure the stability of the foreign exchange market
On July 24, the Board of the National Bank of Ukraine decided to keep the discount rate at 15.5%. This decision is designed to maintain the stability of the foreign exchange market and curb inflationary processes. About this reported NBU press office.
“The NBU will maintain sufficiently tight monetary conditions as long as necessary to ensure a sustained reduction in inflation to the 5% target over the policy horizon”, the regulator noted.
Inflation in Ukraine peaked in May, after which it began to decline in June, although it remained higher than expected. The main reason for this is called unfavorable weather conditions, which affected the prices of food products. Core inflation declined at a faster pace, indicating easing domestic price pressures, although business input and labor costs remained high.
The foreign exchange market, as noted, remains stable — thanks to the previous steps of the NBU, including the regulation of the discount rate. Inflationary expectations of citizens have slightly worsened, but remain at a stable level among experts, which indicates confidence in the temporary nature of price pressure.
The National Bank predicts a further decrease in inflation, although it will occur more slowly than previously expected. The reasons for this decrease will be a tight monetary policy, a stable hryvnia, and an improvement in the situation on the labor market and harvest. According to the NBU forecast, inflation is expected to return to the target level of 5% in 2027. At the same time, economic recovery is slow due to war, infrastructure destruction, demographic challenges and climate impacts. The expected GDP growth in 2025 is 2.1%.
International financial aid plays a key role: in 2025, Ukraine expects $54 billion, of which about half has already been received. It is assumed that these funds will make it possible to maintain stability in the foreign exchange market, curb inflation and finance the budget deficit without additional issuance.
At the same time, significant risks remain: the ongoing war, the destruction of the energy infrastructure, a shortage of personnel, a decrease in harvests, and a potential lack of foreign aid in the coming years. Given these circumstances, the NBU left the discount rate at the level of 15.5%, considering it sufficient to further reduce inflationary pressure. In case of stabilization of the situation, the regulator may gradually switch to softening the interest rate policy, but currently sees no reason for this.
The discount rate determines the interest rate at which the NBU lends to commercial banks. It affects the cost of loans for households and businesses, as well as interest on deposits.
The regulator lowers the discount rate when inflation is not expected to rise. The increase occurs in periods of economic instability or inflationary pressure. So, in June 2022, the rate was raised from 10% to 25% per annum. It remained at this level until July 2023, after which it was reduced first to 22%, and in September – to 20%.
