Will deposit rates rise: What is expected in the NBU
The National Bank expects that banks will continue to raise rates on time deposits of the population, despite the regulator’s updated forecast, which foresees a reduction in the discount rate as early as the 4th quarter of 2023. This was reported by the head of the NBU, Andrey Pyshnyi, in a comment to the EP.
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“The reduction of the discount rate will not prevent the increase of time deposits in the structure of deposits of the population. We expect that the dynamics of banks’ interest rates will continue to be affected by the previous steps of the NBU,” Pyshnyi noted.
He explained that even despite the predicted reduction in the discount rate, monetary conditions in Ukraine will remain quite tight. And the forecasted discount rate itself will still be higher than the current rate of banks on deposits for a long time.
Pyshnyi also noted that the NBU’s measures, such as the introduction of three-month deposit certificates, in which banks can invest funds at the discount rate, already influence the banks’ decision to raise interest rates. The NBU’s operations with them will continue at least until April 2024.
Read: 4 large banks increased the profitability of hryvnia deposits
“Yes, the weighted average rate on hryvnia deposits of individuals over 92 days increased from 12.2% in December 2022 to 13.5% in April 2023 (more, by 0.5 pp, in March). On time deposits up to 92 days in April, the weighted average rate decreased by 0.5 percentage points. to 12.3%. It should also be noted that interest rates on demand deposits dropped from 4.1% in December to 3.1% in April,” the head of the NBU notes.
The National Bank states that the long-term trend of decreasing the share of urgent funds in the population’s deposits has been reversed, and this trend continued in April. Moreover, funds are now flowing into more urgent deposits.
“Finally, I would like to note that future monetary policy decisions will be consistent with our key goals. This is a reduction in inflation and preservation of exchange rate stability. The NBU will move to softening the policy only if the hryvnias saved for citizens are sufficiently attractive and the structure of funds in the banking system is improved,” added Pyshny.
Read: More deposits, less credit: Ukrainians are in no hurry to withdraw money from their accounts
The day before, some large banks reported that they consider the updated forecast of the NBU discount rate as a kind of message to the market, which is why they are reconsidering their decisions on increasing deposit rates.
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Source: Ministry of Finance