Ukraine discount rate rises 1.5pp to 14%

The National Bank of Ukraine (NBU) increased its discount rate by 1.5pp to 14% from 12.5% starting Nov. 13, according to a Nov. 12 statement.

Alexander Paraschiy: It’s encouraging that the NBU has finally realized that monetary tightening is a crucial instrument in curbing devaluation. With this move, the regulator signaled its intentions for monetary tightening, which should boost the hryvnia’s value and mitigate devaluation pressure. Although essentially, the discount rate is not very important in Ukrainian realities, merely serving as an indication of the minimum interest rate at which the NBU can provide refinancing.

Therefore, the measure will have limited impact on the banking system’s liquidity (just a 1.5pp increase is not something that matters in the context of deposit outflow and ForEx uncertainty). However, it is a move in the right direction and can stop devaluation if it’s followed by extra liquidity tightening measures. As a rule, an increased discount rate is followed by a boosted overnight refinancing rate (17.5% at the moment), which is the real price that banks pay for loans from the NBU.