The Board of the National Bank of Ukraine (NBU) raised the discount rate to 13.5% annually on Thursday, in response to inflation rising to 11.2% by the end of November, although most participants expected the regulators to maintain the discount rate at 13%.
"In order to maintain the stability of the currency market, prevent a misalignment of expectations, and gradually bring inflation towards the target, the NBU Board decided to increase the discount rate by 0.5 percentage points to 13.5%," the regulator stated in a press release on its website.
"The NBU sees the need to tighten monetary policy to reverse the inflationary trend and bring inflation down to the 5% target within the policy horizon," the central bank added.
According to the regulator, the increase in the discount rate will help maintain control over inflation expectations and support the real yield of hryvnia instruments.
"This will boost interest in term hryvnia savings and, consequently, will help alleviate pressure on the exchange rate and prices as the temporary inflation drivers are exhausted," the release noted.
The NBU emphasized that ensuring the stability of the currency market will continue to be an important factor in returning inflation to a downward trajectory. It was indicated that the regulator has significant capabilities to compensate for the structural currency deficit in the private sector and to smooth excessive exchange rate fluctuations, thanks to sufficient volumes of international assistance.
The National Bank reminded that inflation accelerated to 11.2% year-on-year in November. On one hand, the significant driver of price growth remained the consequences of limited food supply due to poor harvests this year, according to the NBU. It expects the impact of this factor on inflation to be neutralized next year with the arrival of the new harvest.
"Moreover, the inflation spike is increasingly taking on fundamental characteristics, as evidenced by the further acceleration of core inflation (up to 9.3% year-on-year in November). The latter is linked, in particular, to rising production costs, including for electricity and labor, as well as exchange rate effects resulting from the depreciation of the hryvnia in previous periods. Inflation expectations demonstrate relative stability; however, the risk of their misalignment is increasing against the backdrop of growing public attention to inflationary processes," the National Bank stated.
As reported, the NBU Board decided on October 31 to maintain the discount rate at 13% and announced intentions to keep it at this level until the summer of 2025, while earlier the central bank planned to return to easing it from the first quarter of 2025.