Key Policy Rate Increased to 16%: What Will Happen to Deposits, Loans and the US Dollar Exchange Rate

The National Bank of Ukraine’s increase in the key policy rate from 15.5% to 16% per annum may intensify competition among banks for depositors’ funds, while not necessarily making business loans significantly more expensive. Thanks to banks’ partner programmes with manufacturers and suppliers, the cost of many lending products may remain unchanged. In addition, maintaining high returns on hryvnia savings will create further conditions for supporting the national currency.

This was discussed by Serhii Mamedov, Vice President of the Association of Ukrainian Banks and Chairperson of the Management Board of GLOBUS BANK, in a new podcast on Finance.ua’s YouTube channel.

According to him, the 0.5 percentage point increase in the key policy rate is primarily preventive in nature and is aimed at containing inflationary risks that have intensified amid Russian attacks on energy infrastructure, production facilities and logistics.

In August, annual inflation stood at 8.1%. However, in autumn, businesses faced additional costs for electricity, fuel, transportation and maintaining uninterrupted operations. Some of these costs may gradually be passed on to the final prices of goods and services.

“Of course, the key policy rate cannot stop missile attacks or make fuel cheaper. However, it can contain the spread of price pressures across the economy. That is why the NBU’s decision is preventive to a certain extent. Its purpose is not to wait until inflation gathers pace, but to limit the risks of further acceleration now,” — the banker noted.

Deposit Rates

In Serhii Mamedov’s view, the increase in the key policy rate is a positive signal for depositors, as it creates conditions for maintaining high returns on hryvnia deposits.

Currently, the most common rates on hryvnia deposits, depending on the term, range from approximately 14% to 16% per annum. At the same time, selected promotional and bonus programmes may offer returns of up to 17–17.5% per annum.

The banker expects competition for household savings to remain strong in the coming weeks. In particular, banks may revise the terms of certain deposit programmes, offer additional interest for opening deposits through mobile apps or introduce special offers for new customers.

At the same time, an increase in the key policy rate does not automatically mean higher returns on all deposits. Each financial institution will determine its terms based on its own funding needs, the maturity of deposits and market conditions.

“Most importantly, depositors need not only to earn interest, but also to preserve the purchasing power of their savings. A deposit makes sense when its return helps offset rising prices. That is why maintaining the attractiveness of hryvnia deposits is now one of the important objectives of monetary policy,” — Serhii Mamedov emphasised.

Business Loans: No Automatic Increase in Costs

The banker also focused on the impact of the NBU’s decision on lending to businesses. According to him, an increase in the key policy rate does not mean that all business loans will become more expensive in the near future.

He noted that a significant share of financing for the purchase of equipment, vehicles, agricultural machinery and other production assets is currently provided through partner programmes between banks and manufacturers and suppliers. These programmes offer special financing terms, enabling entrepreneurs to obtain loans at rates below standard market levels.

For loans with fixed interest rates, the cost of financing already provided will remain unchanged. Under existing partner agreements, banks and suppliers also have an incentive to maintain competitive terms for new borrowers.

“Manufacturers need to sell their products, banks need to lend to reliable borrowers, and businesses need to upgrade their equipment and grow. Partner programmes help bring these interests together,” — the expert explained.

According to him, government programmes will also continue to play an important role, as they help partially decouple the final cost of a loan for the borrower from the overall level of market interest rates. For businesses, the key instrument remains the “Affordable Loans 5-7-9%” programme, while in other lending segments a similar function is performed, among other things, by government programmes such as “yeOselya”.

“We need to understand that, under current conditions, businesses simply cannot service loans at excessively high rates on a large scale. Companies are already bearing substantial additional costs related to the war: energy autonomy, logistics, security and the restoration of damaged facilities. That is why partner and government lending programmes are effectively becoming one of the mechanisms that prevent the entire cost of expensive funding from being passed directly on to borrowers,” — Serhii Mamedov noted.

He does not rule out some adjustments to rates on certain standard loans, but does not expect the increase in the key policy rate to lead to a general rise in the cost of business lending.

Access to financing is particularly important amid growing war-related risks, when businesses need funds not only to expand production, but also to purchase generators, establish their own energy sources and resume operations after shelling.

“That is why the main task for banks is to maintain access to credit resources, so that Ukrainian businesses can continue operating and growing even when the cost of money is high,” — Serhii Mamedov emphasised.

Foreign Exchange Market: An Additional Factor Supporting the Hryvnia

The increase in the key policy rate may also have an indirect impact on the foreign exchange market. When hryvnia deposits offer attractive interest returns, households have greater financial incentives to keep their funds in the national currency rather than convert all their savings into US dollars or euros.

This may reduce additional demand for foreign currency and help the National Bank maintain stability in the foreign exchange market.

However, according to the banker, an automatic strengthening of the hryvnia as a result of the increase in the key policy rate to 16% should not be expected.

Ukraine’s foreign exchange market continues to operate under a “managed flexibility” regime, while the significant gap between imports and exports sustains the need for NBU foreign exchange interventions. In addition, the exchange rate depends on international financial assistance inflows and developments in the war.

“A higher key policy rate is therefore not a cure-all for bringing down the US dollar exchange rate, but an additional tool that helps reduce pressure on the hryvnia,” the expert noted.

The banker emphasised that the main objective of monetary policy is to maintain a balance between containing inflation, keeping hryvnia savings attractive and ensuring that the economy has access to affordable financing.

“A strong hryvnia is, above all, about people’s confidence in their own currency, the ability to plan expenses, preserve savings and look to the future with greater confidence,” Serhii Mamedov concluded.