NBU Discount Rate Planned Increase not to Tell on Economic Indicators
OREANDA-NEWS.The increase of the National Bank of Ukraine (NBU) discount rate as a reaction to the recent inflation upsurge would not have much impact on inflation and GDP growth, analyst department of Raiffeisen Bank Aval stated. In contrast to matured economies, where policy of the Central Bank is a key instrument for policymakers, in Ukraine there is almost no relation between NBU policy and main economic indicators due to a number of reasons:
First, the banking system is flooded with the liquidity at the moment, so the demand for NBU funds from banks is negligible. Hence, the change in discount rate would not affect money supply level.
Second, as Ukraine’s financial market remains heavily underdeveloped, the relation between key policy and other interest rates is extremely weak. Therefore, the increase of the NBU discount rate will not have any influence on interbank interest rates, as well as banks’ lending and deposit rates.
Finally, the inflation hike in recent months is of non-monetary nature as it has been mostly explained by imbalances in certain food markets, thus the changes in the NBU monetary policy will not affect inflation performance in coming months.
At the same time, in the opinion of Raiffeisen Bank Aval analysts, taking into account the experience of developed countries, Ukrainian policymakers should make a number of steps to raise the efficiency of interest rate policy. Specifically, it should include measures aimed at developing domestic financial markets, namely debt and interbank markets. Besides, the National Bank should ensure efficient functioning of the interest rate corridor, thus raising the role of interest rates in the economy.
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