A Three-Percentage Point Ukraine Discount Rate Hike

April 15, 2014

On Monday, the National Bank of Ukraine Board raised the discount rate to 9.5% from 6.5%.  Civil unrest and meddling by Russia in the internal affairs of Ukraine have weighed heavily on the hyrvnia, lifting CPI inflation nearly threefold to 3.4% in March from the month before, and more acceleration is likely.  This week’s rate hike is intended to promote both price stability and financial stability, but economic actions are often no match for extreme geopolitical threat. 

Two rate increases of 200 basis points each had been implemented in 2008 to a pre-Great Recession peak of 12.0% in the discount rate.  From that level, there were two cuts in 2009 totaling 175 basis points, three cuts in 2010 totaling 250 bps, then a lull until a 25-basis point easing in March 2012 and two 50-basis point reductions last year implemented in June and August. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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