Principles and formation features of the Central Bank’s interest rate

Abstract

The article examines the general principles of the discount rate policy of the Central Bank through a framework of monetary policy. It contains an explanation of the essence of the discount rate, its economic purpose, and its aspects overseen by the National Bank of Ukraine. The article emphasizes the impact of the Central Bank`s rate on monetary policy and focuses on its main attributes: an indicator for other interest rates, a benchmark for the value of borrowed and placed money, a “price tag” for credit rate, and much more. The provisions mentioned in the article include statements and studies from both domestic and global researchers of interest rate policy. Together they provide a clear overview of the mechanism that takes monetary policy “in shape”. Moreover, this study allows summarizing and identifying the key methodological approaches, principles, and rules used as indicators for the changes in the discount rate. The article describes the main policy approaches of the central bank that correspond to the general principles of financial theory and reflect the prevailing trends in the market economy. The author describes the role and place of the National Bank of Ukraine as a supreme banking entity acting as an institutional center of monetary policy that oversees the local banking system, controls inflation processes in the economy, and promotes open policy and confidence in the market. Furthermore, it inspects the efficiency of the current system and describes possible ways for growth. The study explains that the monetary policy in developed economies is an important tool that meets several principles: predictability and transparency of Central Bank measures, consistency of monetary policy, unity and harmony with monetary policy regulations, compliance with the policy goals, standardization of interest rate instruments, simplification of monetary mechanisms and instruments.