On 12 April 2012, Governor of the National Bank of Ukraine Sergiy Arbuzov held a regular meeting on monetary issues, which was attended by Minister of Finance of Ukraine Yurii Kolobov.
The discussion during the meeting was focused on the ways of implementing social initiatives put forward by the President of Ukraine in the context of bringing them in line with the tasks of the National Bank of Ukraine aimed at ensuring monetary unit stability. Minister of Finance of Ukraine Yurii Kolobov informed the meeting participants that the proposed amendments to the Law of Ukraine “On the State Budget of Ukraine for 2012” would make it possible to resolve the issues related to the provision of funding for making repayments. He also emphasized that the budget deficit ceiling would remain unchanged. He also added that there were reasonable grounds to believe that the implementation of social initiatives would not have a negative impact on macroeconomic and price stability.
The meeting participants pointed out that domestic sources of funding required for the implementation of social initiatives put forward by the President of Ukraine were found owing to positive macroeconomic developments, a key driver whereof being ensuring stability of the monetary unit of Ukraine. In this context, Governor of the National Bank of Ukraine Sergiy Arbuzov emphasized that the National Bank of Ukraine intends to make further efforts to ensure monetary unit stability, which is the NBU’s main function.
The Governor of the National Bank noted that in order to streamline the process of implementing social initiatives put forward by the President of Ukraine, repayments are to be made with the use of the “National card” intended for fund accounting and management of funds in the social sphere. According to Sergiy Arbuzov, all social benefits granted by the government should exclusively be transferred to this social card. The use of this special payment instrument will make repayments more targeted as the existing technology is designed to ensure utilization of funds for intended purposes by a designated person. The National Bank of Ukraine is willing to provide assistance to the Ministry of Finance of Ukraine with regard to the arrangement of repayments with the use of a social card.
When assessing the situation in the monetary sphere, the meeting participants pointed out that the inflation situation is quite favorable. The annual rate of inflation in March stood at 1.9%, being lower compared to that of other countries. In particular, the annual rate of inflation in the Euro area stood at 2.6% in March 2012, in Russia – 3.7%, China – 3.6 %, Kazakhstan – 4.6%.
The foreign exchange market showed signs of improvement. In the first quarter of 2012, the foreign exchange earnings from non-residents exceeded payments to non-residents by USD 3.4 billion. Both official and interbank UAH/USD exchange rate remained almost unchanged on the month. At the same time, the National Bank of Ukraine has only intervened by purchasing foreign exchange since March, the volume totaling approximately USD 0.5 billion (in March-beginning of April).
Price and exchange rate stability facilitated positive developments in the money market, which showed an upward trend in the banks’ funding base and a downward trend in the cost of attracted funds.
The National Bank of Ukraine took measures aimed at supporting favorable market trends. Thus, the National Bank of Ukraine cut a discount rate by 25 basis points and interest rates on the NBU active transactions. The National bank of Ukraine also created conditions allowing for a more flexible liquidity management on account of a reduction in the amount of reserve requirement, which banks are obliged to hold on a separate account with the National Bank of Ukraine. In March 2012, the National Bank of Ukraine gave further impetus to the de-dollarization process by introducing a streamlined differentiation of required reserve ratios and underpinned the development of the market of Russian rubles.
Minister of Finance of Ukraine Yurii Kolobov pointed out that an improvement in the macroeconomic and monetary situation has a positive effect on demand for government securities from investors. It creates prerequisites for a gradual reduction in the cost of borrowing for the government.
The meeting participants appreciated the measures implemented and noted that existing macroeconomic conditions leave room for possible further monetary incentives. Governor of the National Bank of Ukraine Sergiy Arbuzov instructed the NBU structural subdivisions to analyze the possibility and expediency for taking these steps on the basis of data on the developments in the real economy sector and balance of payments in March.