The discount rate of the National Bank – what is it and how has it changed over the past decades?

The discount rate of the National Bank – what is it and how has it changed over the past decades?

The discount rate of the National Bank – the base rate, is determined as a percentage and is the main indicator of changes in lending. It is also the minimum indicator of the cost of borrowed funds for money market entities. It is at the discount rate the NBU lends to Ukrainian banks, and they already impose a small margin on this loan and offer it to individuals and legal entities.

In fact, the country cannot provide loans or mortgages at an interest rate below the discount rate. Even if it’s social programs.

What is the NBU discount rate based on?

The setting of the discount rate is not carried out by one person and within one day. On the day this concept is defined, a comprehensive analysis is carried out. It is predicted:

✅ Economic

✅ Macroeconomic

✅ Microeconomic market

✅ Monetary development

✅ Financial development

All this is carried out by the verified structures of the National Bank of Ukraine. To approve the discount rate, a meeting of the Board of the National Bank of Ukraine is convened, at which the proposals and arguments of the Monetary Policy Department are heard. A detailed analysis of the country’s economy is carried out. Then the National Bank announces the size of the rate on the official website of the NBU.

How has the discount rate changed over the past decades?

Perhaps the discount rate has the lowest level for the entire period of independent Ukraine. At the beginning of the NBU’s existence, the discount rate was supposed to be 30 percent, and by the end of 1992 it had grown to 80 percent.

In 1993, the situation changed, and the indicator increased from 100 to 240. In 1994, economic leaps were observed, and the size of the discount rate began to decrease. But by the end of the year, the figure had increased from 140 to 300.

In 1995, the situation was similar. At the beginning of the year the figure was 96, and in the middle of the year it was 240. But by the new year it was 95-100. In 1996, the figure was kept at about 100, and as a result, it dropped slightly (to 40-50).

1997 started at 35 and ended there. There were different moments in the middle of the year, but the country managed to keep this figure. In 1998, the discount rate increased from 45 to 60. In 1999, on the contrary, from 60 to 45.

The new millennium was kept in the region of 20-30. Since 2001, there has been a regular descent. The discount rate reached 12.5. In mid-2002, a low figure for that period was recorded – 7. From 2008 to 2014, the figure was about 10 +/- 2.5. In 2015, it rose sharply to 30. But in 2016, 2017 and 2018, it held below 20 by about 16-18. Since 2019, it began to decline and reached its lowest value of 6% in July 2020.

The latest registered discount rate is 6.5%, issued in March 2021. This means not only low loans, but also cheap deposits. Therefore, when you put money in a bank, this is no longer a way to earn money, but rather an opportunity to save capital from inflation.

If you look at the discount rates in the richest countries, such as the United States and the European Union, this figure is at the level of 0-0.5%. This is especially useful during financial crises, as cheap loans can simulate the economy. It can be concluded over the past decades, the Ukrainian discount rate has significantly decreased. It indicates the development of the economy and the improvement of the quality of the NBU due to reforms.