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NBU-Discount rate raised from 9.5% to 12.5% per annum

July 17, 2014

ENP Newswire - 17 July 2014

Release date- 16072014 - Having analyzed the behavior of macroeconomic and monetary indicators in the January to June period, the Board of the National Bank of Ukraine pointed to an acceleration in inflation price growth in Ukraine - in June, annual CPI inflation picked up to 12.0%, compared to 0.5% in January.

The rally in consumer prices driven by the hryvnia devaluation, the launch of economic reforms pushing up administered prices and tariffs, and ongoing tensions in the east of Ukraine was anticipated.

An upward movement in price levels was taken into account when the stabilization program supported by a new Stand-By Arrangement (SBA) with the IMF was being devised. Certain measures under this program might put some upward pressure on consumer prices in the short run. However, an ultimate goal of the economic reform program is to set Ukraine's economy on a path to sustainable growth, restore stability in the financial system, thus delivering price stability in the mid term.

Despite the acceleration in inflation price growth, the money market saw some positive signs indicating a gradual improvement of market expectations that under present conditions are the key factors behind the stability of Ukraine's national currency.

These developments were corroborated, among other things, by dominance of net supply of foreign currency seen in the foreign exchange market in the past three months. Overall, in the second quarter of 2014, net supply of foreign currency amounted to USD 0.5 billion, compared to the net demand for foreign currency of USD 1.8 billion in the first quarter of 2014. The move has helped redress imbalances in the interbank foreign exchange market.

A 3.3% increase (or UAH 7.1 billion) in the stock of national currency household deposits seen in June points to an improvement in market expectations.

The Board of the National Bank of Ukraine is resolute in its determination to ensure fulfillment of its top priority function prescribed by law of achieving and maintaining price stability in the mid term. In view of the above, the macroeconomic forecast and current inflation risks, it is necessary to take additional measures to enhance the intrinsic value of the hryvnia by employing interest rate changes. The above said, coupled with other NBU stabilization measures supported by financial resources provided by the international community will help improve the banks' funding base, Ukraine's money market conditions and market players' expectations.

In its turn, it will help put the economy firmly on the path to growth and restore stability in the financial system.

In view of the above, pursuant to Articles 6 and 25 of the Law of Ukraine 'On the National Bank of Ukraine', Regulation on the NBU Interest Rate Policy approved by NBU Board Resolution No. 389 dated August 18, 2004 (amended), on July 15, 2014, the Board of the National Bank of Ukraine passed Resolution No. 417 'On the Money Market Adjustment', which, inter alia, envisages that the discount rate should be set at 12.5%, effective from July 17, 2014. The discount rate was last changed on April 15, 2014, when it was set at 9.5% per annum.

For reference:

The discount rate is the base rate for the National Bank of Ukraine's other rates.

The discount rate serves as a benchmark for measuring the price of money. By changing the discount rate the National Bank of Ukraine sends a signal to market participants about the stance of the monetary policy and signals that it is resolute in its efforts to exercise its main function in ensuring the hryvnia stability.

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Source: ENP Newswire

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