Ukraine will maintain record low discount rate

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National Bank plans to remain unchanged at least until the end of the year

Ukraine will maintain a record low discount rate. Photo: bank.gov.ua

The board of the National Bank of Ukraine decided to leave the discount rate unchanged at 6% per year. Earlier, the NBU stated that it is the lowest level in the entire history of independent Ukraine.

The National Bank insisted that after the decision to keep the rate at 6%, the NBU would pause. “We expect the discount rate to remain at least at the current level by the end of this year,” Reported Head of NBU Kirill Shevchenko.

The National Bank said such a rate would halt price increases in the context of the economic recovery in 2021–2022, and “leave enough room for further reduction of the cost of debt to a single-digit level.”

Inflation continues to accelerate gradually, although it is below the target range of 5% p 1 pp. In June, it rose to 2.4% and, according to National Bank estimates, continued to accelerate in July as well.

The main factor behind the rise in inflation was the rise in prices of some raw food products due to unfavorable weather. Expectations of trade and population inflation also worsened. At the same time, inflation was hindered by weak domestic demand, a favorable position on the foreign exchange market and relatively low prices for energy resources.

According to the NBU, inflation will continue to move modestly and will return to the target range of 5% +/- 1 PP this year. At the same time, according to the regulator, in the second half of the year, inflation will pick up (up to 4.7% at the end of the year) under the influence of several factors, both external and internal:

  • Soft monetary and fiscal policy;
  • An increase in energy prices, as well as a fall in the fruit crop.

During 2021-2022, inflation will remain within the target range.

Ukraine’s economy will decline by 6% in 2020, but will increase by about 4% in subsequent years, the NBU said.

The National Bank also revised forecasts for real GDP declines in 2020, ranging from 5% to 6% due to coronaviruses. A deep drop was left behind – in the second quarter, NBU noted.


National Bank of Ukraine

Despite the NBU’s statement, the regulator previously reported that the level of business activity of enterprises in Ukraine set the first conflicting record in five years.

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Previously we wrote that the National Bank warned Ukrainians about the risk of debt “at 0%”. In particular, the regulator stated that in reality such a rate can only be valid for one week.

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