NBU Council approves Monetary Policy Strategy

The Council of the National Bank of Ukraine (NBU)
approved the Monetary Policy Strategy document submitted by NBU Board, the
central bank reported in a press release on July 16. The Strategy prescribes an
inflation-targeting regime as a pre-condition for the sustainable macroeconomic
development of Ukraine.

NBU Governor Yakiv Smoliy emphasized that NBU Board
and NBU Council have a “common vision” regarding mid-term monetary policy. Consistent
and predictable monetary policy should result in price stability in the
country.

The approved Strategy reconfirms key elements of
inflation-targeting regime and settles major goals of monetary policy in the
mid-term. At the same time, the specific monetary policy tools are to be
reviewed every year in order to comply with current external and internal
macroeconomic risks. The mid-term policy goal – consumer inflation of 4-6% –
should be reached by the end of 2019. Afterwards, a goal of 5% should be
maintained, though the goal could be revised downward. The NBU is aware that
inflation could deviate from the target due to factors that are beyond the
influence of monetary policy. In this case, the NBU should use monetary
instruments in order to return inflation to the target level.

The Strategy also underscores the need for the
institutional independence of the central bank. In this context, the NBU should
refrain from any maintenance of fiscal outlays.

Evgeniya Akhtyrko: It is important that the NBU’s commitment to an inflation-targeting
regime finds support from NBU Council. As presidential and parliamentary
elections scheduled for 2019 approach, the pressure on the NBU’s management is
likely to increase. In particular, there could be demands for greater NBU
interference into ForEx and maintenance of fiscal expenditures through the
purchase of government securities by the NBU (i.e. hryvnia emission). The NBU’s
independence in decision making is crucial for maintaining macroeconomic
stability in the country.