The Board of the National Bank made a decision to keep the discount rate at the level of 6% per annum from July 24, 2020. This discount rate is the lowest in the history of independent Ukraine, recalled the head of the NBU Kirill Shevchenko on July 23 during a briefing on decisions on monetary policy. “On the one hand, this will restrain the rise in prices amid economic recovery in 2021-2022, and on the other, it will leave sufficient space for further reducing the cost of loans to a single-digit level,” Shevchenko said.
A change in the discount rate affects the cost of loans provided by the National Bank to commercial banks. The higher it is, the more expensive refinancing loans are for banks, the more expensive they offer their own loans, the fewer borrowers take out loans. When inflation and the risks of macroeconomic instability in a country intensify, the central bank raises the interest rate and implements a tight monetary policy.
This means that lending is already more risky, so the price of money in the economy is growing. With a decrease in inflation and an improvement in the macroeconomic situation, the discount rate usually decreases and this entails a gradual reduction in the cost of deposits and loans.