Saturday, January 4, 2025
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Money is getting cheaper in Ukraine. Who will benefit from this and what will happen to the deposits?

The National Bank of Ukraine continues to soften interest rate policy, so on June 13, the regulator’s board decided to reduce the discount rate from 13.5% to 13. The news is also pleasant because the discount rate in the Central Bank of the Russian Federation remains at 16%. And in Ukraine, the NBU is giving a signal to the market - money will become cheaper.

The discount rate is the instrument with which central banks carry out basic operations with banks: issue or attract money. Now rates on certificates of deposit and refinancing rates have also decreased by 0.5%.

Why is it important

The majority of experts surveyed by ICU (47%) did not expect a surprise and predicted just such a decision, that is, the NBU should have reduced the accounting rate by 0.5%.

Associate expert of CASE Ukraine Evgeniy Dubogryz predicted: “Arguments for a reduction to 13%. Successful – once again – revision of the program with the IMF. Inflation is below expectations. A course that has not yet flown into space. Waiting for income from partners. A successful conference in Berlin and multi-billion dollar investments.”

Interestingly, slightly fewer experts surveyed by the ICU (43%) believed that the discount rate should be reduced more significantly.

ICU group financial analyst Mikhail Demkiv told Telegraph: “Given inflation expectations for the next 12 months at 6.7%, there is a high probability that the National Bank will continue to reduce the rate this year.”

Expert Andrey Shevchishin, in a comment to Telegraph, clarifies: “If the previous reduction to 13.5% was aimed at stimulating lending (and growth was recorded until May), then the current decision is aimed at maintaining macroeconomic stability. This can also be interpreted as the NBU moving to a pause in further rate cuts.”

The head of the analytical department of Concorde Capital, Alexander Parashchiy, expressed his confidence to Telegraph: “Based on the results of the next meeting at the end of July, we are unlikely to see a further reduction in the rate.”

What will happen to deposits?

In all cases, with a reduction in the discount rate, the NBU always finds itself on a stretch: it is necessary to reduce the cost of money for businesses and maintain the attractiveness of hryvnia deposits for the population.

Mikhail Demkiv draws attention to the fact that recently “rates on deposits in national currency for individuals have been inferior to the growth rate of the dollar after the transition to managed floating. Especially after taxes."

*The official dollar exchange rate today is 40.42 UAH. This is an increase of 10.5% compared to the beginning of October, when the course began a controlled voyage. In annual terms, this is 15.7%, that is, even the nominal return on deposits in hryvnia does not cover the devaluation during this time.

The regulator has leverage to maintain the attractiveness of hryvnia deposits: in recent months, the rates of government bonds, the main competitor of the hryvnia in household accounts, have been going down quite quickly.

“Over the past weeks, we have observed both a decrease in rates on deposits in banks and a decrease in the yield of government bonds at the primary auctions of the Ministry of Finance, and the latest decision on the discount rate may further reduce these rates,” says Alexander Parashchiy, head of the analytical department of Concorde Capital.

Attention: NBU communications are no longer about “preserving the attractiveness of hryvnia assets.” At the same time, the focus shifted to “protecting savings from inflationary depreciation.”

We read between the lines: rates on hryvnia deposits for the population will freeze at least until the end of summer. The NBU diligently ensures that rates on hryvnia deposits bring more expected income than the population's investments in hard foreign currency.

What will happen to loan rates?

The NBU discount rate is a kind of reference point for the “price” of money. Its decrease will affect the yield on deposits and government bonds. But, unfortunately: “This decision will most likely not have an impact on other indicators of the financial market (such as loan rates). After all, banks will need to compensate for the decrease in their profitability from certificates of deposit and government securities,” says Paraschiy.

The main positive in the latest NBU release is the removal of the risk of external financing. All agreements have been reached, there is a positive vision even for next year to receive funds from the frozen assets of the Russian Federation. But we keep the calendar before our eyes: on July 25 we expect a new macro forecast from the NBU, on the basis of which they will make decisions on monetary policy.

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