NBU’s decision: discount rate – 8%

On Thursday, April 23, the NBU took up the baton of most central banks of the world to support the economy, and lowered the discount rate by 2 points from 10% to 8%.

Low economic activity reduces the inflationary pressure, which allows the National Bank to pursue an aggressive policy to support the economy during the crisis without the fear of increase in prices. In addition, Ukraine is on the verge of receiving a huge tranche of financial assistance from the IMF at a low rate, which will partially close the budget deficit and stabilize the country’s financial system. This fact gives the NBU free rein and encourages the lowering of discount rate.

Thus, before our eyes, a kind of “anti-crisis super-team” is being formed, which includes the Ministry of Finance with an anti-crisis budget, the NBU with a supportive monetary policy, and the IMF and the Western partners with massive financial assistance.

And now a few words about the discount rate of 8%

The rate is not an indicator detached from reality. The discount rate has a huge impact on the financial system through many mechanisms. With a low discount rate, the NBU significantly reduces the value of money in the country, stimulating the lending and accelerating the economic activity. The NBU has many mechanisms to reduce the cost of money, but the regulator is expanding them even more, in particular, the long-term refinancing loans (up to 5 years) are being introduced, the list of collaterals is being extended, and an interest rate swap is being created. Additional mechanisms are being introduced, which will make it even easier for the banks to form cheap and long-term liabilities for the purpose of further mass lending.

How does this affect the results of the funds?

The decrease in value of money in the country over time leads to lower interest rates on G-bonds. And it is the G-bonds that are the main tool from which the portfolios of funds managed by OTP Capital are formed. Reduction in yields on the government bonds will increase their value, which will be transformed into an increase in the yield of the funds.

Other news

22.04.2020
OTP Capital’s Heading: View on the current events Dear Investors and Depositors, traditionally, we publish our prompt messages regarding the...
Read more
14.04.2020
OTP Capital column: View on the current events Dear investors and depositors! We continue to publish the prompt notices regarding...
Read more
10.04.2020
Dear members of OTP Pension fund! We understand your concern about the results of the fund in March. And we...
Read more