The National Bank of Ukraine sees no prerequisites for reducing the discount rate in the coming months. The majority of the Monetary Policy Committee (MPC) members admits that interest rate policy will remain tighter than the current forecast of the regulator suggests.

This is stated in the results of the MPC discussion of October 28, published by the National Bank on November 9.

None of the 11 committee members supports a reduction of the discount rate in the coming months. The majority also believes that due to increased inflation risks, the rate trajectory may be higher than the NBU's current forecast.

During the October meeting, eight committee members were in favor of raising the rate to 16.5%, while three proposed keeping it at 16%. Ultimately, the NBU Board decided to raise the rate to 16.5% annually from October 30.

The main reason for the tight monetary policy remains accelerating inflation. In September, consumer prices rose by 10% year-on-year, although the July NBU forecast projected 8.4%. Additional pressure comes from fuel price increases, the consequences of Russian attacks on production and logistics infrastructure, and rising business costs.

Inflation expectations are also deteriorating. In particular, banks in October forecast inflation at 10%, compared to 8.7% in July. The forecast of financial analysts also rose during this period.

Special attention was given by discussion participants to the foreign exchange market. Due to a decrease in exports and an increase in the need to import energy resources and defense products, the currency deficit in the private sector increased. To compensate for it, the National Bank increased the sale of foreign currency on the interbank market.

The NBU believes that high interest rates support the attractiveness of hryvnia deposits and other savings instruments, restraining additional demand for foreign currency.

A moderate reduction of the discount rate is allowed by committee members in 2027 - approximately to 14%. However, such a scenario depends on inflation slowing down and a reduction of risks to the economy. This is a forecast, not a decision made.

At the same time, the committee has an advisory status. Final decisions on the discount rate are made by the Board of the National Bank.

Based on materials from: National Bank of Ukraine