The National Bank of Ukraine continues its dialogue with businesses. From this point forward, meetings will be held on a quarterly basis. The communication takes place in the most practical and productive mode. CEOs of top Ukrainian business associations – the European Business Association (EBA), the American Chamber of Commerce (ACC) and the Union of Ukrainian Entrepreneurs – identify relevant business issues, pick major discussion topics, and raise them at the meetings. During the meetings, members of the NBU Board comment on such issues, offer solutions, explain innovations, and announce upcoming plans.
The first working meetings with representatives of the EBA and ACC have recently taken place.
"The National Bank of Ukraine is grateful to Ukrainian businesses for their resilience and extraordinary adaptability. We are open to regular interactions. We appreciate an open dialogue and the chance to get feedback directly from companies’ representatives. Constructive discussions of issues that concern the business community the most are extremely important, especially when the regulator is making policy decisions," said NBU Governor Andriy Pyshnyy as he spoke to the meetings’ participants.
The NBU Governor and his deputies discussed with the business associations a wide range of issues, including the current macroeconomic situation, FX regulation, and the central bank’s currency liberalization plans.
Ukraine's current macroeconomic conditions
Inflation has declined for the fourth month running, to 17.9% yoy in April 2023. The easing of inflation was partially due to improved expectations and the positive impact on the FX market of the central bank’s efforts to make hryvnia assets more attractive.
International support has been an important component of ensuring macrofinancial sustainability in Ukraine. The conclusion of the Extended Fund Facility arrangement with the IMF amid unprecedented uncertainty has been a powerful signal to other partners and a benchmark for the fulfillment of commitments by Ukrainian authorities.
The significant announced volumes of international aid and the revitalization of the domestic debt market will help avoid monetary financing of the budget deficit this year. The NBU and the government have jointly been working to achieve this goal.
Ukraine’s international reserves have reached an 11-year high of almost USD 36 billion thanks to substantial international financial support and the improved situation in the FX market. Coupled with improvements in a number of macroeconomic indicators, including a sustained disinflation trend, this lays the groundwork for a gradual rollback of FX restrictions and a transition to a floating exchange rate, provided that such steps pose no threats to the stable operation of the financial system.
NBU’s plans to loosen FX restrictions
Since the outbreak of the full-scale invasion, the NBU has imposed administrative restrictions to retain control of the FX market, safeguard international reserves, prevent unproductive capital outflows, and help reduce depreciation pressure, while creating conditions for economic activity.
Over time, however, the effectiveness of such restrictions dies down while their restrictive impact on economic activity intensifies. A liberalization of FX restrictions in the foreseeable future is therefore becoming increasingly relevant.
The NBU is developing a roadmap to ease FX restrictions. This action plan is one of the elements of the FX policy strategy, which will also include efforts to restore exchange rate flexibility and return to inflation targeting. Preparation of the strategy is a structural benchmark under the new EFF program with the IMF. This benchmark must be met by the end of June 2023.
The roadmap will prioritize which restrictions to loosen based on the costs and benefits of their application. Restrictions that distort market mechanisms the most and/or interfere with business as usual will be relaxed before any others.
First, measures will be taken to minimize the multiplicity of exchange rates, ease restrictions on trade transactions, and promote new loans and investments. Measures related to trade financing and FX risks of banks, as well as steps to loosen controls on capital transactions, will be introduced in the next stages of currency liberalization.
The relaxation of the temporary FX restrictions will take place in stages and will not be tied to specific deadlines. Before making relevant decisions, the NBU will check whether the necessary macroeconomic prerequisites are met, and thoroughly analyze the impact of such decisions on the FX market and the economy.
"We are aware that administrative restrictions are fulfilling their purpose, but that their effect is fading. Businesses currently need FX oxygen to be able to better adapt and develop. Meanwhile, war-related risks remain significant, and FX resources are limited. We will make a decision about which FX restrictions to ease, depending on the value added that it brings to the Ukrainian economy. We will move forward as quickly and ambitiously as the macro conditions allow, the main priority being the preservation of macrofinancial stability," said Andriy Pyshnyy.