NBU to raise the cost of refinancing following the increase of the discount rate

Photo: Konstantin Melnitsky

The National Bank of Ukraine will return to the policy of tight money. Following the increase in the discount rate from 14% to 19.5% per annum the NBU increases the cost of refinancing for the banks.

«Our analysis of risks of rising interest rates showed that they are relatively low compared to the risk of further devaluation on a significant scale,» said Director of the Department of Monetary Policy and Economic Analysis at the NBU Serhiy Nikolaichuk.

Starting on February 6 the rate on overnight loans will rise from 17.5% to 23%. For long-term loans it will be set at the level of the discount rate — 19.5%.

Banks use refinancing loans mainly to meet the standards of the NBU, as well as to comply with reserve regulations. The financial regulator holds overnight refinancing tenders every day and tenders for longer periods of time — every Wednesday. Once a month the NBU grants refinancing loans for 90 days, and three times a month — for two weeks, said Nikolaichuk.

The NBU also raises the value of the instruments, which absorb liquidity in the market — namely, certificates of deposit. Starting on February 6, the overnight certificates of deposit will be placed at 13%. This is by 2 pp higher than in the past. The rate of long-term certificates of deposit will increase from 13% to 15%.

The NBU has already raised interest rates on its instruments several times. Last year, the regulator raised the rates on overnight certificates of deposit from 7.5% to 11%, and up to 13% for long-term certificates. The NBU holds auctions for certificates of deposit daily and attracts money for a period of 1 to 90 days.