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NBU Changes Operational Design of Its Monetary Policy

NBU Changes Operational Design of Its Monetary Policy

The National Bank of Ukraine (NBU) has revised the operational design of the monetary policy due to a gradual recovery of the economy and return to normal operational conditions of the financial system. Adjusting the operational design will strengthen monetary transmission via the interest rate channel and facilitate development of the interbank lending market. 

Starting from 23 July, the cost of refinancing loans issued through tenders will increase, including: 

  • interest on refinancing loan issued to banks for the term of up to 90 days through holding a tender with full allotment shall be the key policy rate + 1 pp (previously it was equal to the key policy rate) 
  • interest on refinancing loan issued to banks for the term of up to 3 years through holding a variable rate tender with limited allotment shall not be less than the key policy rate + 1 pp (previously it was not less than the key policy rate).

"In order to reduce inflation over the monetary policy horizon, the NBU has increased the key policy rate three times this year. At the same time, to advance the effect of the monetary policy, the NBU Board decided to increase the rate on refinancing loans additionally by 1 pp,” noted Kyrylo Shevchenko, NBU Governor. 

Due to retained high liquidity in the banking system – as of 22 July it exceeds UAH 200 billion, – the offer of certificates of deposit for a period up to 14 days has been determined as the main action of the central bank to regulate liquidity. As before, at fixed rate tenders the interest rate on certificates of deposit equals the key policy rate. 

For reference:

In Q3 2021, the NBU began to rollback anti-crisis monetary measures that were introduced in response to the coronacrisis. This decision results from recovery of the economy to stable growth and preservation of major liquidity surplus in the banking system. 

Specifically, on 1 July 2021, the terms of long-term refinancing loans were reduced from 5 to 3 years and executed under terms of interest-rate swap. The NBU capped tenders for long-term refinancing at UAH 5 billion, and limited the regularity of interest-rate swap auctions from two to one auction per month. The maturity of certificates of deposits was increased to a precrisis level (14 days). 

The NBU intends to continue rolling bank the anti-crisis monetary measures according to the announced schedule.

If financial markets suffer no major shocks, long-term refinancing and interest rate swaps will be suspended from 1 October 2021. Additionally, in September the feasibility of reducing the term of regular refinancing loans will be considered.


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