The Central bank increases discount rate 3 ppt up to 12.5%

UKRAINE - In Brief 17 Jul 2014 by Dmytro Boyarchuk
The National Bank of Ukraine today increased discount rate by 3 ppt up to 12.5% from 9.5% previously. The overnight refinancing rate was increased to 17.5% from 14.5%. The Central bank targets to reduce inflation rates, according to the explanatory note of the regulator. In fact, we see this move as an attempt to test how monetary policy tools might work under free float regime. No doubt, we will not see prompt impact of this step on inflation since more than 50% of CPI comprises of foodstuff prices which more depend on harvest results rather than on any other factor. However, increased discount rate and refinancing rate might affect hryvnia exchange rate through increased hryvnia price. It is not clear how soon consumer prices will respond to hryvnia strengthening. However, at least the Central bank will gauge transmissions mechanisms before starting with inflation targeting.

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