NBU Council criticizes central bank policy

The Council of the National Bank of Ukraine (NBU)
determined in a formal resolution that the bank’s activity in forming and
implementing currency policy to be ineffective, Council Head Bohdan Danylyshyn
said in a press release posted on his Facebook page on Dec. 5. The council
recommended “to implement all ways and means for softening monetary
policy.”

Other council recommendations included the call for
updating the strategy on managing and replenishing gross international
reserves. The council is particularly concerned about the increased share of
non-resident investors in Ukraine’s local debt and the possible consequences of
their massive exit from the market.

It also called upon the NBU to assess the effects of joining the Clearstream system
“at the demand” of non-resident investors in Ukraine’s local bonds, to research
the influence of the exchange rate on consumer inflation, and to make an
assessment of the real effective exchange rate.

NBU Deputy Governors Oleh Churiy and Dmytro Sologub
addressed all the issues raised by the council in an interview with the
Interfax Ukraine news agency that was published on Dec. 5. In particular, they
emphasized that the full volume of foreign currency that was brought by
non-residents to Ukraine’s market for purchasing local bonds was purchased out
by the NBU for replenishing gross reserves. They also noted that reserves serve
for smoothing out short-term fluctuations, and they can’t be employed for
solving long-term problems.

All in all, Churiy and Sologub called for assessing
macroeconomic policy as a whole, as the excessive concentration on certain
indicators distorts the overall picture.

Evgeniya Akhtyrko: We cannot
interpret this NBU Council resolution as anything other than another attempt to
question the competence of Ukraine’s central bank top management. The council
has overtly chimed in with the ragtag group of critics who want to make the NBU
manageable by other (vested) interests and digress from its consistent
long-term policies in order to satisfy their short-term needs.

The interview of the NBU’s deputy governors confirms
the central bank has decided to stay strong in defending its policy. The
institution has made immense progress not only in increasing its
professionalism and competence, but also in developing effective communication
with the public in trying to make its decision-making highly transparent. 

However, we cannot exclude a worst-case scenario in
which the continued attacks against the NBU ultimately result in a takeover by
these vested interests and the loss of the NBU’s independence.