On the NBU discount rate and its impact on retail deposit interest

The average yields on hryvnia deposits (UIRD) in the banking system are already in the range of 13.7-14.6% per annum. The leaders in this area are neobanks, which at the same time offer depositors up to 18%, and some throw in 1% per annum for promotions or draws. The market is at an all-time high.

Now another question has arisen: How long will it stay there?

My opinion is that it is not likely to be very long, so anyone who wants to open hryvnia deposits on favorable terms should hurry up.

The financial market is seriously talking about the possibility of the NBU cutting its key policy rate. Many expected this just this month - the NBU Board's decision was announced on June 15. Logical arguments were made for a gradual decline in the inflation rate, which reached 15.3% in May, this being a prerequisite. However, this did not happen, and the regulator decided to keep the rate at 25%, which was set in June 2022. Apparently, they are expecting this trend (of lower inflation) to be consolidated, which is also understandable in principle. The NBU is pursuing a balanced and well-considered monetary policy, which has already been tested by the war and the economic crisis.

However, the NBU is still open to lowering its key policy rate, as it informed the banking community when it demanded that their strategies until 2025 be calculated along with an estimate of SREP. The NBU's macro indicators state that banks should calculate everything with a view to a possible rate cut by Q4 2023 from 25% to 23.2%. And further decline to 20.3% in Q2 2024 and even up to 18.8% in Q4 2024.

It has become clear that as inflation declines to 9.6-12.8% (as stated in its macroeconomic targets), the NBU expects the cost of hryvnia resources, the key policy rate, to decline. There is a direct correlation here, and the regulator is building a logical trend.

There is no doubt that the NBU will try to intensify lending to the Ukrainian economy as the hryvnia becomes cheaper, and that the financial market will receive new guidelines and inputs. I would like to believe that by then our soldiers will have made great progress in liberating Ukraine from the invaders and the restoration of our country will begin. It will require large capital investments.

However, all this is now an important signal not only for borrowers but also for hryvnia depositors. They are told that if the economic situation develops better, the discount rate will no longer be as high as it is now - 25%. This means that there will be no very high hryvnia rates on household deposits. Now they are at their peak, but they will not stay there for long. As the hryvnia resource becomes cheaper, interest on retail deposits will also decline.

This means that everyone who has been hesitating and waiting for the best time to open a hryvnia deposit should hurry up and finally open an account. To receive a fixed rate that will be charged on the deposit even when the overall profitability of deposits declines throughout the banking system. In this case, it is best to fix the interest not for a short but for the maximum period.

It is better to get more now and for a longer time, so that you do not regret the lost moment later. The longer the placement period, the higher the interest earnings.

The maximum rates are most often offered by non-banks. The state guarantees all deposits in all banks without exception until the end of martial law (plus 3 months after it), which should convince even the most distrustful skeptic.

In addition, neobanks do everything they can to save time and nerves of depositors. There is no need to queue up in bank branches - everything can be done quickly in the mobile application and deposit funds by transfer or in cash through a self-service terminal. At the same time, deposit programs are offered for those who like passive income - with monthly interest payments.