The NBU plans to lower the discount rate to 13-14% by the end of the year, despite the risks

Most participants of the NBU's Monetary Policy Committee forecast a reduction in the discount rate to 13-14% amid rising risks

National Bank of Ukraine
National Bank of Ukraine / Julia Berezovska, CC BY-SA 4.0 DEED

At the meeting of the National Bank of Ukraine's monetary policy committee held on March 13, the majority of the 11 participants expressed the view that by the end of the year the base interest rate will drop to the level of 13-14%, as reported on the website of the National Bank of Ukraine.

Such expectations follow the NBU's January forecast of a decrease to 14%.

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However, participants pointed to limited opportunities for easing monetary policy, citing the upcoming acceleration of inflation in the second half of the year, high security risks for the next year, and uncertainty in external financing.

The committee also emphasized that plans to continue liberalizing the foreign exchange market limit the possibility of rate reduction, as it is necessary to maintain the attractiveness of the national currency and avoid pressure on international reserves.

In the opinion of the majority, a significant reduction in the interest rate is possible only with improved financial assistance and a better overall risk balance.

Some participants, in contrast, expect a reduction to 11-12% by the end of the year, arguing this with projected moderate inflation and the continuation of international support. They are confident that the economy has adapted to the current conditions and that further rate cuts will facilitate lending and economic recovery.

It is important to note that on March 14, the NBU lowered the rate from 15% to 14.5%, which was a surprise to the market, as it was previously assumed that changes would only occur from the third quarter.

Earlier, the head of the Bundesbank Joachim Nagel warned of the possibility of lowering the key interest rate by the European Central Bank in June, even considering the existing risks for the eurozone.

Also, expecting soon a decrease in inflation below 2%, The Bank of England decided to keep the interest rate at 5.25%.

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