Ukraine central bank cuts discount rate to 6.5%

The National Bank of Ukraine reduced its discount rate by 0.5pp to 6.5% on August 12, according to Olena Shcherbakova, the head of NBU monetary policy department.

Alexander Paraschiy: The NBU’s decision is already the second discount rate cut in the last three months (the NBU reduced the rate by 0.5pp to 7.0% on June 10). With these moves, the NBU is signaling its intention to relax monetary policy and stimulate crediting of the economy.

Nevertheless, high interest rates on deposits and local risks (such as devaluation) are keeping hryvnia commercial loan interest rates at nearly 16% and a 0.5pp cut in the discount rate will not make loans much cheaper. Against this backdrop, we anticipate quite a modest effect of this policy decision on interest rates and banks’ lending activity.