The Board of the National Bank of Ukraine lowered the discount rate by 1 percentage point due to the slowdown in inflation.
Starting March 13, the National Bank of Ukraine lowered the discount rate by 1 percentage point to 10%. About it it says in a message on the regulator’s website.
“The National Bank’s board made a decision on the discount rate in conditions when inflationary pressure wears off faster than expected, and the economy needs further support. Taking into account this set of circumstances, the board extended monetary policy easing and reduced the discount rate by 1 percentage point to 10%, as stipulated by the January forecast. This will provide the necessary incentive to the economy, “the National Bank said.
The National Bank noted that “inflationary pressure is being exhausted faster than expected.” “In January-February, consumer inflation slowed faster than the forecasted trajectory (up to 3.2% in January and 2.4% in February), while continuing to be below the 5% target range,” it was reported.
The regulator indicates that the inflation slowdown “is due to a further reflection of last year’s hryvnia appreciation in the cost of goods,” as well as “a significant supply of most raw foods, low energy prices.”
“These factors offset the effect of strong consumer demand, which was reinforced by the continued growth in real incomes of the population,” the NBU said.
At the same time, it was reported that the economy of Ukraine has not yet been fully affected by the general slowdown in the global economy due to the coronavirus pandemic, the easing of monetary policy by the central banks of the leading world economies and trade partners of Ukraine in response to the pandemic. Reducing inflation in Ukraine can also trigger “competitive wars between countries – oil producers.”
“In general, all these factors will have a multidirectional effect on economic growth and inflation in Ukraine, which increases uncertainty,” the NBU explained the reasons for the decrease in the discount rate.
According to the results of the year, the regulator said, the National Bank predicts a reduction in the discount rate to 7%.
The percentage at which the National Bank of Ukraine issues loans to commercial banks depends on the size of the discount rate. Its reduction reduces the cost of loans for financial institutions, which in turn leads to a decrease in interest on loans for the population, as well as a decrease in yield on deposits.
To reduce the discount rate to support the economy in a crisis caused by the coronavirus pandemic, resorted, in particular, the US Federal Reserve.
An outbreak of COVID-19 coronavirus infection began in December 2019 in Wuhan, China. On March 11, the World Health Organization declared it a pandemic.
At the end of January, Moodyʼs Analytics predicted that the coronavirus epidemic could become a black swan for the global economy and do more damage than the financial crisis of 2008-2009. According to the European Commission, Italy and France, as the countries of Europe most affected by the coronavirus, a recession could threaten. IMF Managing Director Kristalina Georgieva believes that the epidemic could slow down the global economy by 0.1 percentage points, provided that the world begins to recover from the effects of the outbreak in the second quarter of 2020.