Decline: National Bank updates discount rate

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How does the regulator plan to support the economy

How has the discount rate changed and what will happen to inflation. Photo: bank.gov.ua

The National Bank of Ukraine has reduced the discount rate to 8%, with the regulator expected to decrease to 7% during 2020. As stated on the NBU website, monetary easing is associated with further support to the economy in the context of an epidemic and quarantine measures.

According to the National Bank report, inflation was low in March – April, despite temporary price increases during the first weeks following the start of quarantine. Therefore, in March, annual consumer price growth slowed to 2.3%. According to the NBU, the increase in prices was mainly controlled by three factors:

  1. Cheap energy in global markets
  2. Impact of last year’s hryvnia appreciation
  3. Increase in raw food supply

According to preliminary data from NBU’s online monitoring, inflation in April will also remain low.


National Bank of Ukraine

National Bank said that Inflation in 2020 Monetary and fiscal measures to support the economy will not be a constraint, the regulator emphasized, to remain in the target range of 5% +/- 1 PP.

In the following months, inflation will increase sharply and to 6% by the end of 2020, i.e. it will remain within the target range. The National Bank stated that fiscal and monetary policies measures are aimed at supporting business and that the population partially curbs consumer demand declines. However, consumer demand will remain “depressed” long after the quarantine ends, and will prevent inflation from rising to more targeted levels this year. The fall in world energy prices will also curb inflation, which will continue to affect the cost of fuel in the domestic market.

National Bank said that Rise in inflation From the current indicators this would be, firstly, due to the recent transfer of depreciation prices of hryvnia. In the first quarter of 2021, inflation will temporarily move beyond the target range due to the effect of a lower comparison base, but will slow to the medium-term target level of 5% where it will remain in the future.

Quarantine and reasons for global crisis Ukrainian Economy There will be a decrease of 5.0% in 2020, but will resume growth of about 4% in subsequent years, the National Bank noted.


National Bank of Ukraine

National Bank reviewed Current account deficit forecast Downstream for 2020. This year the current account deficit will be 1.7% of GDP (compared to 3.2% in the January forecast).

National Bank allocated as such Risks to the Ukrainian economy:

  1. Prolonged coronavirus epidemic and continued restrictive measures
  2. Increased military conflict in the East
  3. Reduction in production of cereal and fruit and vegetable crops in Ukraine due to adverse weather
  4. Considering the volatility of world food prices, global climate change and increased protectionism in the world

It is also reported that Ukraine has come close to approval by the IMF Board of Directors of a new cooperation program. The updated NBU forecasts the first tranche of financing in the second quarter amounting to approximately $ 2 billion. These funds will make it possible to increase the state budget deficit to 7.5% of GDP, as well as maintain Ukraine’s international reserves at the level of $ 27-29 billion during 2020 and subsequent years.

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According to a survey by the National Bank, before the government introduced quarantine in response to the spread of the COVID-19 epidemic, Ukrainian companies expected further economic growth and moderate inflation. However, after these events, business sentiment deteriorated as expected. Therefore, according to the March results, the monthly index of business activity expectations (IODA) decreased by 5.4. The base indicates a level of 45.8. The index price, below 50 points, shows the predominance of pessimistic trading sentiment.

Read: FUIB paid coronovirus insurance for one and a half thousand doctors


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