08/25/2023, 10:01 — Personal financeHow a change in the discount rate affects deposit rates: NBU explainsThe population takes into account the attractiveness of hryvnia instruments when choosing between savings and consumption, as well as choosing a savings currency. Such decisions largely predetermine exchange rate and inflationary dynamics. Therefore, the monetary policy of the NBU is aimed, in particular, at creating incentives for banks to ensure sufficient attractiveness of hryvnia instruments. About it told in the press service of the National Bank of Ukraine.
“To achieve these goals, the NBU accordingly changes the discount and other rates on its operations with banks, and also, if necessary, applies other monetary instruments. A change in the discount rate primarily affects the cost of interbank credit resources, and over time, the profitability of deposits,” the regulator notes.
NBU studies show that such an impact on deposit rates is asymmetrical: banks are usually more willing to reduce deposit rates than to increase them.
Read also: Deposits to look at in the summer of 2023
With an increase in the interbank rate by 10 p.p., deposit rates in Ukraine grow by an average of 4.7 p.p. over 12 months, while with a decrease by 10 p.p., they reduce deposit rates by 6.3 p.p. Monetary transmission is influenced by a number of factors, in particular:
economic uncertainty – in conditions of turbulence, banks are less inclined to sharply change deposit rates, and depositors also become more cautious, trying to keep most of the funds in the most liquid form; the level of liquidity – its significant surplus weakens the banks’ incentives to compete for depositors;
significant monopolization of the deposit market – market makers determine the dynamics of rates that are beneficial for themselves, not caring about the reaction of competitors and the possible loss of customers;
inflationary dynamics – higher inflation contributes to a more tangible increase in rates to maintain the attractiveness of deposits, lower inflation allows banks to reduce rates without the threat of an outflow of funds. Central banks can use additional tools to enhance monetary transmission. Thus, this year the NBU significantly raised the norms for the formation of required reserves by banks, changed the mechanism for their calculation, and also introduced a unique operational design of monetary policy. These measures contributed to a significant increase in the attractiveness of hryvnia term deposits: over the six months of 2023, the volume of household term deposits in hryvnia grew by 23.3%, and their share in the total portfolio increased by 4.3 p.p.
Read also: 10 facts about bank deposits you need to know
At the same time, the demand for foreign currency decreased, as evidenced, in particular, by the significant strengthening of the hryvnia cash rate since the beginning of 2023. This had a positive impact on expectations, supported the stability of the foreign exchange market, and hence the downward trend in inflation. With a high liquidity surplus, a significant concentration of the deposit market, a steady slowdown in inflation and a gradual decrease in the level of uncertainty, one can expect a faster-than-usual decline in nominal deposit rates in response to the cut in the discount rate.
At the same time, thanks to slower inflation and improved expectations, the real yield of term hryvnia deposits will remain at a high enough level to maintain the attractiveness of the hryvnia against foreign currencies. When adjusting the parameters of interest rate policy, operational design and required reserves, the NBU will continue to take into account the need to maintain incentives to fuel competition among banks for fixed-term deposits of the population.
By the way, you can earn more on a deposit if you use the “Deposit Bonus” program from Finance.ua. Learn more about the program and benefits here.
If you notice an error, select the required text and press Ctrl+Enter to let us know.Finance.ua/All news/Personal finance/How changing the discount rate affects deposit rates: NBU explains
2023-08-26 19:21:10
#change #discount #rate #affects #deposit #rates #NBU #explains #Finance.ua
