The National Bank of Ukraine (NBU) has decided to reduce the discount rate from 20% to 16%. The changes will come into force on October 27.

This was reported in the press service of the National Bank.

At the same time, the regulator does not change interest rates on its transactions with banks.

"On 27 October 2023, the Board of the National Bank of Ukraine has decided to set the key policy rate at 16%, equalizing it with the overnight rate on certificates of deposit. Thus, the NBU is modernizing its operational design of monetary policy according to the "lower limit" system," the statement said.

Rates on transactions with banks remain unchanged:

The regulator also improved its forecast for Ukraine's GDP growth in 2023 - from 2.9% to 4.9%.

Next year, according to the NBU, GDP will grow by 3.6%, although security risks will remain. Economic growth will be driven by the further development of alternative supply routes and the preservation of a loose fiscal policy.

In addition, the National Bank has improved its inflation forecast for 2023. Thus, according to the forecast, the level will decrease from 10.6% to 5.8%. The reason: the impact of high yields on the dynamics of food prices.

In 2024, inflation will remain in the single digits, although the rate will rise to 9.8%.

To recap, on June 2, 2022, the NBU raised the key policy rate to 25% after three months of fixing it at 10%. This decision was the regulator's response to the acceleration of inflation to almost 17% and the trend towards the flow of hryvnia assets into foreign currency.

On July 21, the National Bank kept the discount rate at 25% after raising it to this level in June.

In December 2021, the National Bank of Ukraine raised its key policy rate from 8.5% to 9% per annum. The key policy rate began to rise on 5 March 2021, when it was increased from 6.0% to 6.5% per annum.

The discount rate is a benchmark for the value of money in the economy. The higher the discount rate, the more expensive the currency is and vice versa. When it is important to curb inflation, as it is now, the key policy rate is raised. When the key policy rate rises, so do the interest rates on deposits and loans. Accordingly, it becomes more profitable to save in hryvnia. This reduces the pressure on prices.