The National Bank of Ukraine has raised its policy rate to 16% per annum, a decision taken against the backdrop of tightening inflationary risks. According to RBC-Ukraine, this move aligns with a broader global trend: the central banks of the US, Europe, and other countries are also raising rates amid the fuel crisis and rising prices. Financial analyst Andriy Shevchishyn assessed in a brief interview how effective this hike is and what it means for businesses and citizens.

The Essence of the Decision and the NBU's Logic

In practice, the NBU sees inflationary risks and is trying to get ahead of them, using monetary levers to curb inflationary trends, the analyst explained. In his words, inflation is running above the regulator's expectations, additional risks have emerged, so the rate is being raised to improve the yield on hryvnia-denominated instruments — deposits and government bonds (OVGZ). At the same time, Shevchishyn noted that the previous hikes from 15% to 15.5% did not produce a sufficient improvement in yield indicators, which raises questions about the effectiveness of the measures.

Is 16% Enough to Curb Inflation

The analyst believes that the current hike may not affect the containment of inflation, since the factors driving inflation lie outside the influence of monetary indicators. At the same time, he emphasizes that maintaining the yield on hryvnia instruments is necessary so that free hryvnia, against the backdrop of rising import prices, does not flow into foreign currency and create additional pressure on the exchange rate. In this sense, the mechanism is effective.

Impact on Business and Consumer Lending

Rising the policy rate increases the cost of loans, since this is a rise in the risk-free rate: banks now have an alternative — to place funds in deposit certificates at 16% instead of issuing a loan. According to Shevchishyn, banks are behaving cautiously and are not eager to rapidly expand lending, so on the free market loans remain expensive. The key growth in lending is forming in limited sectors and under state support programs, including the "5-7-9" program, although, in the analyst's assessment, the government currently has no money for this program. For the population, consumer, auto, and mortgage loans will also become more expensive, excluding preferential programs.

Will the Rate Hike Be Passed On to Goods Prices

In the analyst's view, there is no direct and rapid pass-through of more expensive credit into the cost of goods and services: market monetary factors do not have such a fast transmission. A much greater impact on prices is exerted by security factors, the destruction of goods, and logistics problems. First and foremost, the banking sector will feel the consequences of the decision, as it is through the banks that the transmission passes: banks attract funds from the NBU and lend them to the economic sector.

Contradictory Data

The assessments of the parties show a discrepancy in judging the effectiveness of the measures. On the one hand, the NBU is raising the rate precisely to curb inflation and improve the yield on hryvnia assets, and the decision fits the global tightening trend. On the other hand, the invited expert himself points out that inflationary factors lie outside the influence of monetary instruments, that the previous hike from 15% to 15.5% did not yield a noticeable improvement in the yield of deposits and OVGZ, and that the current step "may not affect" the containment of inflation. Moreover, in the NBU release that the analyst refers to, the opposite scenario is also mentioned: if the demand situation worsens due to shelling and its impact on the labor market, the regulator may consider lowering the rate to stimulate the economy. Thus, there is no single version guaranteeing the effect of the hike.