The Board of the National Bank of Ukraine has approved and submitted Proposals to the Monetary Policy Guidelines for 2018 and Medium Term to the  NBU Council for consideration. This document provides for the consistency of inflation-targeting monetary policy and the NBU’s steadfast commitment to this policy.

“Sustained economic growth and therefore improved welfare of Ukrainians are only possible in a low and stable inflation environment.  The only way to ensure a low and stable inflation rate is to remain consistently committed to an inflation-targeting monetary policy.  The consistency of monetary policy is key to its credibility, and and therefore the currency's credibility that lays a solid foundation for investment decisions by households and businesses,” said NBU Acting Governor Yakiv Smolii.

To ensure the consistency of monetary policy, the NBU Board deems it necessary to steer monetary policy toward bringing inflation down to target levels approved last year, notably to 6% by the end of 2018  and to 5% by the end of 2019 and throughout the next years.  Therefore, the NBU Board suggested setting not only year-end targets but also quarter-end targets:

• March 2018: 7.5% +/- 2pp;
• June 2018: 7 % +/- 2 p.p.;
• September 2018: 6.5% +/- 2pp;
• December 2018: 6% ±2 pp;
• March 2019: 5.75% +/- 2pp;
• June 2019: 5.5 % +/- 2 p.p.;
• September 2019: 5.25% +/- 2pp; and
• December 2019 and after:  – 5% ±1 pp.

It is expected that starting from December 2019 the medium-term inflation target will be maintained at 5% ±1 pp. In other words, the NBU will keep its efforts focused on achieving this inflation target on a permanent basis.

This being said, the NBU has to continue to deploy conventional monetary policy tools (primarily, the key policy rate) to achieve the announced inflation targets.

The exchange rate policy has to be consistent with ensuring  price stability rather than geared toward maintaining the exchange rate at a designated level or range. The central bank may intervene in the foreign exchange market to further accumulate international reserves and to smooth out excessive exchange rate volatility to mitigate its impact on inflation. At the same time, as the FX market improves its efficiency, the NBU will gradually reduce its presence there, conduct FX interventions less frequently and relax its administrative restrictions.

“Last year an inflation targeting regime proved to be efficient in Ukraine in bringing inflation down from 43% in 2015 to 12% in 2016, to the target set by the NBU. This enabled the NBU to keep underlying inflation pressures in check and improve inflation expectations,” remained NBU Deputy Governor Dmytro Sologub. However, Mr Sologub pointed out: “Last year’s success does not mean that the inflation targeting regime had met the target of bringing inflation down and today it can be replaced by another regime without triggering repercussions for price stability”. In 2018 and in the medium term, a number of external and domestic factors and risks will exert pressure on prices and monetary policy will be geared toward mitigating their impact over the next years.

The NBU Board is confident that under an inflation-targeting regime the NBU will remain focused on promoting economic growth unless it conflicts with achieving the price stability goal.

The NBU is set to use the flexibility of inflation targeting so that when Ukraine’s economy is exposed to negative shocks the central bank will steer its monetary policy not only toward bringing inflation down to the set target but also toward bringing GDP back to its potential level.

“However, in the longer run, a low and stable inflation environment encouraged by the NBU will be a major factor contributing to sustainable economic growth,” stressed Mr Sologub Most available research carried out across the globe suggest that high inflation has an adverse effect on economic growth and leads to a rise in social inequality.  Volatile inflation leads to greater uncertainty, adversely affecting investment activity that is an important driver of sustainable economic growth.

*In accordance with the Law of Ukraine On the National Bank of Ukraine, the NBU Council  elaborates the Monetary Policy Guidelines on the basis of the NBU Board proposals, publishes them in the official editions and submits them yearly till 15 September to the Verkhovna Rada of Ukraine for referential use.