Bets are placed

The National Bank of Ukraine decided to give the Ukrainian economy a positive signal. The decree of NBU No. 102 from March 21 provides for reducing the banking rate from 7.75 to 7.5 percent. It also provides that since March 31 the change of procedure of emergency funds creation and reducing the part of funds of commercial banks on the NBU accounts from 70 to 60 percent.

The NBU kept the banking rate invariable since August 10, 2010 and the last time the procedure of emergency funds creation changed on November 30, 2011.

Justifying its decision the NBU draws attention to the positive tendencies in the development of economy and the monetary market in 2012: at the end of February the annual inflation decreased by three percent and the banks reduced the resource cost.

“The abovementioned improvement and favorable price dynamics create a possibility to use additional stimulants to activate crediting of the real economy, in particular through using interest leverage and more flexible approach to the emergency funds creation through reducing a part of funds the banks create on separate accounts,” the document emphasized.

However, the NBU decided to add the demands towards emergency funds creation daily kept on the correspondent account in the central bank (at the beginning of the banking day): from March 31 they will have to be not 25 percent but not less than 30 percent of the emergency funds. They also made a decision to differentiate reserve requirements more. There will be preferences for the national currency reserves. It has to reduce the stability risks for hryvnia and make the economic processes less dependent on dollar. In this regard the reserve requirement for foreign currency transaction accounts for individual persons and legal entities will increase since March 31 from 7.5 to 8 percent. The reserve requirement for deposit funds of legal entities and individual persons in foreign currency till called for will increase from 8 to 8.5 percent.

In principle, reduction in the bank rate and fewer requirements towards reserve creation is first of all aimed at making cheaper the credits of commercial banks. How much cheaper? When asked this question, the chief of advisory group of the NBU head Valerii Lytvytsky did not answer since, according to him, he does not like reading the tea leaves. He believes that this decision will help to invest into the economy and contribute into its growth. However, the NBU’s interest policy will be efficient only if it works “with other decisions: reducing risks for banks as for the budget policy, people’s income increase through the budgetary initiatives, etc.” Lytvytsky is sure that the reduction in the bank rate together with other administrative and legislative measures will positively influence credit price in Ukraine. “Other channels have to stably work for this: currency exchange, banks refinancing and stock market work,” Lytvytsky says.