NBU plans further cuts in refinancing rate

Deputy Governor of the National Bank of Ukraine (NBU) Dmytro Solohub says that the central bank plans a further reduction in its refinancing rate, but it would be premature to set a zero rate at the moment.
”We are in a rate cuts cycle. I am not able to predict when we will cut the rate next time, we will evaluate the inflation,” Solohub told UNIAN in an exclusive interview.
The regulator will continue to gradually liberalize its monetary policy, he said.
”It would be premature to talk about a zero rate, it is important, however, that it [rate] would not be as high as it is now,” Solohub noted.
A reduction in the regulator`s refinancing rate alone is not enough to stimulate the economic growth in the country, according to the NBU Deputy Governor.
”If we set a rate at 2-3%, who would then come to take loans to build a plant in Cherkasy region? Rather, amid political instability, it would be more expedient to buy dollars, while our economy is quite debt-laden, and there are not so many creditworthy borrowers,” he said.
Solohub also said that it takes about 12-18 months for the market to react to changes in the refinancing rate. After the NBU had decided to reduce the rate to 19% per annum in April, market interest rates also started to decrease.
”What we are observing now is that the interbank market rates have started to decline despite an insignificant reduction in our rate. While, not only the actual reduction in rates is important, but also expectations of further cuts, so the expectations channel comes into play. Against the backdrop of stable forex rates and decreasing inflation seen late in March – early in April, the deposit rates in some banks have already demonstrated a downward trend,” he added.
As UNIAN reported earlier, on April 22, 2016, the NBU reduced the refinancing rate by three percentage points to 19% per annum from 22% per annum that was effective from September 25, 2015. The NBU also improved its monetary policy tools, equating the rate on 14-day certificates of deposit to the refinancing rate.
On March 4, 2015, the NBU raised its refinancing rate to the historic high level in the Ukrainian banking system: to 30% from 19.5% per annum that was effective previously. On August 28, the NBU cut its refinancing rate to 27%, and on September 25, it was cut to 22% per annum. The regulator said further reduction was possible provided the maintaining of the market stability.

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