Speaking at a press conference, Governor of the National Bank of Ukraine Valeriia Gontareva said that when determining the appropriate level of the discount rate, the National Bank of Ukraine took account of the projected rate of inflation over the next year.
“The National Bank of Ukraine intends to adopt an inflation targeting regime and we are taking the first steps down this path. We should look ahead. We should not set the discount rate at levels consistent with the rate of inflation recorded last year. When setting the discount rate, we should anticipate future inflation developments. Eventually, the discount rate starts to play some role,” said Ms Valeriia Gontareva.
Governor of the National Bank of Ukraine Valeriia Gontareva pointed out that the discount rate and rates on refinance loans, as was the case in Ukraine, had failed to work in practice, adding that they had not been commensurate with the market situation on the ground. She said that a rise in the discount rate was in no way intended to restrict banks' access to refinancing operations. This is evidenced by the fact that on July 16, 2014, the National Bank of Ukraine announced an interest-rate liquidity-providing tender with a maturity of 90 days, without any restriction on the amount of refinance loans granted to banks. Over UAH 5.2 billion in refinance loans at 14.25% per annum was provided to banks.
"Overall, 21 banks received refinance loans through this tender. Every bank that held government securities was entitled to apply for refinancing and purchase as much resources as it needed. It is this condition that represents a significant step towards the development of the capital market in Ukraine," she emphasized.
“We will draw a yield curve that plots the time to maturity (from an overnight maturity to a maturity of up to 90 days) that will be linked to the discount rate for both certificates of deposit and refinancing over this period, – explained Valeriia Gontareva. – Financial instruments with a maturity of over 90 days will form part of a liquid domestic sovereign bond market that the National Bank of Ukraine, together with the Ministry of Finance of Ukraine, would develop. This year's task is to make financial instruments with a maturity of up to 1 year highly liquid and financial instruments with a maturity of up to three years sufficiently liquid, and draw an actual yield curve that plots corresponding maturities".
She also said that a fully liquid domestic sovereign bond market would pave the way for the development of the capital markets. “Our top priority is to develop a fully liquid domestic sovereign bond market. Upon achieving this goal, we will focus our efforts on developing other segments of the stock market," said Ms Valeriia Gontareva.