Bankers expect NBU to maintain discount rate at 15.5% – survey

The National Bank of Ukraine (NBU), given the inflation in June at 14.3% and macroeconomic indicators, will once again leave the discount rate at 15.5% per annum at the meeting on July 24, all bankers surveyed by Interfax-Ukraine believe.

"The rate will remain unchanged, since there is exchange rate/inflationary pressure on the economy, but the regulator is keeping the situation under control," Head of the Interbank Operations Department at PrivatBank Mykyta Myshakov told Interfax-Ukraine.

Director of the Retail Business Department at Globus Bank Dmytro Zamotaiev also believes that the NBU monetary committee will leave the discount rate unchanged, as well as the rate on the rest of the monetary instruments.

"Despite the fact that inflation according to official data decreased to 0.8% in June and to 14.3% in annual terms, we still expect a conservative decision from the regulator," Zamotaiev said.

He said the June inflation indicators showed a decrease for the first time since the beginning of the year, but this may not be enough to promptly change the discount rate.

"We understand that the improvement of the economy (namely, the decrease in inflation) should become a long-term 'trend,' we should observe such a trend for at least two-three months. Therefore, there are hardly enough reasons to change the discount rate now," the expert said.

He said that already in September, while maintaining the inflation "trend," the regulator may reduce the discount rate by 0.5-1 percentage point (p.p.), depending on economic and statistical indicators, since it is the economy that determines the appropriateness of adjusting the discount rate.

Head of the Retail Business at Sense Bank Yulia Tur shares the same opinion. "Despite the decrease in inflationary pressure, we do not expect any changes in the discount rate at the moment," she said.

Director of the Analytical Research Department at Raiffeisen Bank Oleksandr Pecherytsyn also agrees with the opinions of his colleagues.

"Of course, the significant decrease in inflation in June is really perceived as a certain turning point in the inflationary trend. However, the rate of decrease was worse than expected, which confirms that the trajectory of easing inflation may be less stable or take longer than initially expected," Pecherytsyn said.

He also believes that after the publication of inflation data for June, the probability of more diverse opinions on further steps in monetary policy at the monetary committee meeting increases. Pecherytsyn does not rule out that the National Bank will adjust its inflation forecasts for the end of the year in an upward direction, although on the other hand, the dynamics of core inflation were better than forecasts, which may demonstrate the effectiveness of the current monetary policy in containing inflation.

"However, we believe that given the current risks (which also include possible prospects for deterioration of harvests due to adverse weather conditions), reducing the discount rate may be a premature step at this time, given the instability of disinflationary trends. Therefore, maintaining the rate at the current level is seen as the most rational solution in the current conditions," the director of the Analytical Research Department at Raiffeisen Bank said.

Head of the Management Accounting and Business Analysis Department at OTP Bank Inna Provotar does not predict a change in the discount rate on July 24. Meanwhile, in her opinion, steps towards a moderate easing of monetary policy are possible within a three-six-month horizon, provided that macroeconomic indicators continue to improve.

"We expect that in July the NBU Board will leave the discount rate unchanged at 15.5%, but we assess the probability of a discount rate reduction at the next meeting in September as high," Director of the Strategy and Corporate Governance Department Roman Lepak said.

In his opinion, although inflation began to decline in June after the May peak, its inflation level still exceeds the macroeconomic forecast previously published by the National Bank. The key factor of inflationary pressure remains adverse weather conditions that affect the food market. Despite the general slowdown in consumer price growth in June, the rate of increase in raw food prices continued to grow and reached almost 29% in annual terms.

"In view of this, it is expected that the NBU will decide to keep the discount rate at the current level until the trend towards a sustained slowdown in inflation is confirmed in the coming months. We expect a reduction in the discount rate at the next meeting in September," Lepak said.

As reported, in March the National Bank increased the discount rate by another 1 p.p., to 15.5% per annum, but for three consecutive meetings it has decided to keep it at this level. The last time the decision to maintain the rate was supported by all 11 members of the Monetary Policy Committee.