The Board of the National Bank has decided to reduce the discount rate from 8% to 6% from June 12, 2020, according to the regulator’s website. “This is the lowest discount rate in the entire history of independent Ukraine. Consumer and investment demand is highly likely to remain subdued longer than forecast in April.
On the one hand, this will keep inflation below the target for longer than the April forecast. On the other hand, this means that the fall of the Ukrainian economy may be deeper than expected. This development of events requires further easing of monetary policy to support the economy at the stage of gradual quarantine rollback, ”the NBU said in a statement.
The National Bank explains that although inflation in April-May hovered around the 2% mark and was less than expected, in the future it is likely to return to the target range longer than predicted. “Taking into account the expected stay of inflation below the target for a longer time, the board of the National Bank has lowered the discount rate by 2 percentage points to 6%. Thus, since the beginning of the year, the discount rate has decreased by 7.5 percentage points, ”the NBU added.
The regulator said that at the new discount rate, overnight refinancing loans will be provided at 7%, and overnight certificates of deposit will be provided at 5%. “A decrease in the key rate to a level below neutral indicates the end of the cycle of early easing of monetary policy,” the bank said. The last time until today, the National Bank reduced the discount rate on April 23 from 10 to 8%.
The discount rate is one of the tools by which the National Bank sets a benchmark for commercial banks on the cost of loans and deposits.