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The National Bank has lowered its key policy rate to 16%

The National Bank of Ukraine has set its key policy rate at 16% starting on October 27, thus making it equal to the overnight rate.

The NBU announced the change on the Internet.

Interest rates on the NBU’s other transactions with banks have been set as follows: the key policy rate + 4 pp (20%) for three-month certificates of deposit (CDs) and the key policy rate + 6 pp (22%) for refinancing loans. The rates on the NBU’s transactions with banks will thus actually remain unchanged.

Concerning the key policy rate, the NBU sees opportunities for further lowering it at the next meeting if the market adapts and risks don’t rise.

Why the NBU has lowered the key policy rate

This decision was made as part of the modernization of monetary policy operational design. In other words, the NBU updates the logic of its interactions with banks. It will enable the bank to maintain short-term hryvnia interbank rates close to the key policy rate. As a result, the NBU will have more power to influence the expectations of economic agents and the motives of their economic behavior.

Meanwhile, keeping rates on the NBU’s transactions with the banks unchanged conforms to the need to maintain the attractiveness of hryvnia instruments. This means that the bank wants to preserve people’s ability to protect their savings from inflation (which, according to the NBU’s forecast, will rise to 9.8% next year) by keeping them as hryvnia instruments, deposits, and domestic government bonds.

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