Ukraine’s central bank unveiled measures to spur competition among local lenders and kept borrowing costs on hold as the government closes in on a deal with the International Monetary Fund for some $15 billion in financing.
(Bloomberg) — Ukraine’s central bank unveiled measures to spur competition among local lenders and kept borrowing costs on hold as the government closes in on a deal with the International Monetary Fund for some $15 billion in financing.
The key policy rate remained at 25% on Thursday, the level it’s been since the central bank raised the benchmark by 15 percentage points in June to halt a spike in inflation.
The decision was made “with a view to bringing down inflation further, protecting hryvnia savings from being eroded by inflation, and maintaining a stable exchange rate,” the National Bank of Ukraine said in a statement.
Officials announced steps to improve competition among lenders to boost savings in hyrvnia, pointing to additional risks to macro-financial stability due to a “substantial portion” of household funds remaining in current accounts. That’s because the nation’s largest lenders are reluctant to offer interest rates high enough for depositors given current high and expected inflation, the central bank said.
Policy makers introduced higher-yield three-month deposit certificates that will be available for lenders that have reached a certain level of retail savings, while they also cut the interest rate on overnight deposit certificates to 20%.
While the bank also suggested that the steps would help create conditions for foreign exchange restrictions to be eased, Governor Andriy Pyshnyi said a decision would be made next week on whether foreign investors in Ukrainian government debt should be allowed to buy foreign currency for transferring payments on these bills across the border.
The IMF and the government in Kyiv have made progress in talks for a fully-fledged program, which would mark the first time the lender will provide aid to a nation at war.
The talks are “productive and very good progress has been made,” the IMF said in a statement Wednesday.
(Updates with central bank steps form the fourth paragraph.)
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