“The rapid change [of the refinancing rate] implies the National Bank admits crisis trends of the economics, as this is its second reaction already. Besides, the NBU acknowledges that the first effort proved to be inefficient,” he said.
Meanwhile, the lowering of the refinancing rate is not as effective for Ukraine, as it is for developed economies, the expert points out.
“Indeed, Ukraine has a transformational economy, which means the country cannot perceive the refinancing rate in a traditional sense. Its efficiency is much lower in Ukraine, compared to developed economies. It is equally true, even if the rate would be lowered to 4-5%. The Ukrainian system is linked to the currency rate, rather than to the refinancing one. 70-80% of the country’s economic problems could be solved with the help of the currency rate. Meanwhile, the government seems to use any possible means trying not to disturb this ‘sacred cow’,” he said.
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According to the economist, in theory the lowering of the refinancing rate should be transformed into the lowering of rates on credits.
“High rates and economic situation are the key problems of Ukraine, it is not the refinancing rate that makes it unbeneficial for businessmen to loan money, but the watchdog agencies strangling business. Thus, credits won’t be raised even with proposed lower rates,” Mr.Shavaliuk added.
To the economist’s mind, in fact, the new decision by the NBU could be characterized as the “policy of cheap money for the government.”
“Lowering the refinancing rate is an attempt to transfer money from the reserves of the banking system liquidity to the government’s accounts. Ukraine has high-yield Eurobonds, besides there are no domestic foreign currency borrowings and the government cannot place foreign currency bonds without yield increase. It means the government should reduce yield or the National Bank should lower the rate and fill the economy with money so that it could keep the same yield rate. In such a way, formally it is a policy of cheap money designed primarily for the government. I think, this is a key motivation of the refinancing rate reduction,” the economist emphasizes.
Mr.Shavaliuk has also pointed out that the NBU reduction of the refinancing rate opens the route of escape “in case the banking system has problems with liquidity again.”
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“In such a way the government is demonstrating that it is ready to refinance banks on a large scale. The refinancing rate is lowered so that the banks take the refinancing,” the expert added.
The economist has doubts about the efficiency of the government’s efforts. “The government policy is a sign of zero-effect actions, the officials had read much theory in books, but had not taken into account the potential efficiency of this theory for Ukraine,” he said.
Let us remind, that the National Bank decided to reduce the refinancing rate from 7% to 6.5% per annum starting from 13 August. The most recent NBU’s effort to reduce the refinancing rate by 0.5 percentage points up to 7% dates back to this June. Previously, the refinancing rate had been kept at the constant level since 23 March 2012, when it was lowered from 7.75%.
