In January - October 2011, movements in the macroeconomic and monetary indicators indicate persistent positive trends in the performance of the domestic economy.

Thus, real GDP growth in the third quarter of the current year stood at 6.6% (according to the preliminary estimates), compared with the corresponding period of the previous year, both industrial output (by 8.6% over nine months) and agricultural output (by 16.6% over ten months) have shown an upward trend. 

More robust investment activity has stimulated economic growth. In particular, January - September 2011 witnessed an increase of 21.2 % in investment in fixed capital, compared with the corresponding period of the previous year.

A relevant monetary policy, conducted by the National Bank of Ukraine, contributed to a slowing in the rate of inflation. In October 2011, the consumer inflation has declined on a year-on-year basis to 5.4% versus 11.9% in June 2011. In January - October 2011, an increase in the CPI stood at 4.2% versus 7.9% in the corresponding period of the previous year. 

These positive developments are laying the foundation for further economic growth.

However, the instability of the international financial markets determines the need to minimize the risks associated with this instability in advance. Starting from the third quarter of 2011, the domestic economy became exposed to these risks, which were manifested by a heightened demand for the foreign exchange, an increase in the share of foreign currency deposits in the total deposits, etc.

Under such conditions, de-dollarization of economic relations should contribute to the deepening of differentiation of required reserve ratios towards strengthening the preferential reserve requirements for the funds attracted in the domestic currency.

The above-mentioned will also contribute to the maintenance of stability of the monetary unit of Ukraine in the context of unstable world market conditions, considerable movements in the exchange rates of the leading currencies and cross-border capital flows. 

However, these measures must not prevent the banks from exercising a set of intrinsic functions. The introduction of more flexible approaches to forming the required reserves by banks, in particular, by enabling banks to form a part of the required reserves on the correspondent account with the National Bank of Ukraine, will facilitate the efficient and predictable operation of the money market.

Given the above, and pursuant to items 1.8 - 1.12 of Chapter 1 of the Regulation on the Procedure for Forming the Required Reserves for Ukrainian Banks and Foreign Banks’ Branches Operating in Ukraine approved by Resolution of the Board of the National Bank of Ukraine No91 of 16 March 2006, registered with the Ministry of Justice of Ukraine No 312/12186 of 23 March 2006 (amended), the Board of the National Bank of Ukraine approved Resolution “On Certain Issues related to the Money Market Regulation” No 407 of 15 November 2011, which stipulates the following:

1. Since 30 November 2011, to establish the following procedure for forming the required reserves by Ukrainian banks:

on a special account with the National Bank of Ukraine 3203  “Funds of required reserves transferred by banks”, amounting to 70% of the required reserves formed by banks for the previous reporting period of reserving;

on a correspondent account with the National Bank of Ukraine – the remaining amount of the required reserves formed pursuant to the ratios established for the corresponding period.

2) To establish the following required reserve ratios for forming required reserves by banks:

demand deposits of legal entities and natural persons in the national currency and funds held in current accounts– 0;

demand deposits of legal entities and natural persons in the foreign currency and funds held in current accounts– 8;

time deposits of legal entities and natural persons in the national currency– 0;

funds attracted by banks from non-resident banks and non-resident financial institutions in the national currency, – 0;

long-term deposits of legal entities and natural persons in the foreign currency– 2;

funds attracted by banks from non-resident banks and non-resident financial institutions in the foreign currency, – 2;

short-term deposits of legal entities and natural persons in the foreign currency– 7,5.

3. Since 30 November 2011, to establish the amount of required reserves of no less than 25% of the amount of the required reserves formed by banks for the previous reporting period of reserving, which has to be kept daily on the bank correspondent account with the National Bank of Ukraine at the beginning of a business day;

The optimization of required reserve ratios will create incentives for banks to attract funds (deposits) mainly in the national currency and increase their maturity.

Simultaneously, banks will be allowed to form a part of the required reserves on the correspondent account with the National Bank of Ukraine, which will contribute to a more flexible liquidity management.