How citizens can now protect their hryvnia income and savings from inflation
According to the press service, in April inflation in Ukraine accelerated to 16.4% in annual terms and, according to the NBU, it may exceed 20% by the end of the year. The National Bank has significant experience in fighting inflation.
During the war in 2015, it even reached 60%, but the NBU eventually reduced it to its goal of 5%. However, reducing inflation takes time.
In order to protect their savings from rising prices right now, Ukrainians can put money on a bank deposit.
Interest rate on deposits depends on its type urgent or on demand. For the latter, the rate is usually lower. Also, the rate depends on the term of the deposit. The average rate on deposits for 1-3 months is 6-7% per annum in hryvnia, for 12 months – about 8%.
Deposits are protected and in case of liquidation of the bank, the Fund for Guaranteeing Deposits of Individuals will reimburse depositors for their funds. For the duration of martial law and three months after it, this is a 100% guarantee. After this period, the guaranteed amount on deposits will be UAH 600,000.
Another savings option is to purchase government securities.
During the war, the government issued special military government bonds, the money from which goes to finance the needs of the army and social needs. The maximum rate on previously issued hryvnia bonds was 11.5% per annum.
Payments on them are 100% guaranteed by the state and serviced by the Ministry of Finance of Ukraine.
What will a rate hike change?
Firstly, should increase the rates on government bonds. In this way, you can not only reduce the impact of inflation on your savings, but also help our army bring victory closer.
Military government bonds can be bought in a few clicks through online banking applications.
Now the state is placing military government bonds and offering them a maximum of 11.5% per annum in hryvnia. This is higher than interest rates on bank deposits, but below the rate of inflation. If the rates on government bonds grow after the discount rate, they will become much more interesting for savings and will help Ukrainians protect their money from inflation.
Secondly, should increase rates on bank deposits. As in the case of government bonds, the interest rate on them does not cover the losses from inflation. After raising deposit rates, Ukrainians will have one more tool to secure their income.
“As a result, it is expected that citizens will have more opportunities to save in hryvnia. This means that the demand for currency and pressure on the exchange rate will decrease. Therefore, the NBU will be able to maintain exchange rate stability and slow down inflation,” the NBU said in a statement.
How the increase in the NBU rate will affect lending and economic recovery
The NBU does not expect a significant increase in interest rates on loans, because they have grown before, despite the unchanged discount rate since January 2022. This is due to the fact that banks are at great risk of not returning the loan during the war. Therefore, they try to issue loans only to reliable borrowers for whom they compete with each other. Such competition constrains the increase in interest rates on loans.
At the same time, interest in hryvnia deposits and government bonds will increase. It will help reduce pressure on the exchange rate and contain inflation. When the National Bank reaches these goals, it will begin to reduce the rate to stimulate the economy, which will need to quickly recover after winning the war, the NBU notes.
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