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NBU Buys UAH 20 Billion of War Bonds in Second Such Purchase

NBU Buys UAH 20 Billion of War Bonds in Second Such Purchase

On 12 April 2022, the NBU Board has decided to purchase UAH 20 billion in war bonds. This is the second time the central bank has bought these securities. As a result, the NBU holds a portfolio of UAH 40 billion in military domestic government debt securities as of 13 April.

By supporting the state budget in this way, the NBU has been ensuring that Ukraine can effectively repel russia’s full-scale military aggression. However, as previously announced, the NBU will provide only limited financing, in a transparent manner, so that the government can meet its critical expenses.

This approach will allow the regulator to minimize the risk of inflation expectations getting out of control, the risk of inflation becoming high, and the risk of macrofinancial stability being disrupted. In addition, this approach will facilitate a quick return of the economy and financial markets to their market-driven mode of operation after Ukraine wins the war. At the same time, this approach will not put at risk Ukraine’s European integration, nor will it interfere with the efforts by international financial donors to help Ukraine.

As before, the NBU is not the main source of funding the government relies on for making expenditures. Even as the war has raged on, Ukrainian companies have been gradually going back to business as usual and paying taxes, while the Ukrainian people have been donating large amounts to the Armed Forces. International partners have also been providing Ukraine with vital financial, military, and humanitarian aid.

Should the government require more funds to finance its critical expenses, the NBU will make separate decisions regarding the viability of new purchases of domestic government debt securities. Going forward, the NBU’s comment on changes in its war bond portfolio will be published on a monthly basis, no later than the fifth day after the month begins.

As the Ukrainian economy and financial system go back to normal, the NBU will resume, as soon as possible, the pursuit of its inflation-targeting regime with a floating exchange rate and a ban on financing the state budget.

For reference

On 8 March 2022, the NBU Board decided to purchase UAH 20 billion of government-issued war bonds. In addition, the government laid out the core principles of such transactions: transparency, limited size of purchase, and use of funds raised to meet only critical expenditures.

The Verkhovna Rada of Ukraine has amended the laws in order to enable these transactions between the NBU and the government. Specifically, the Verkhovna Rada has decided to temporarily waive Article 54 of the Law of Ukraine On the National Bank of Ukraine, which forbids the NBU to make loans to the state.

Respective changes were also stipulated in NBU Board Resolution No. 43 On Purchase of Domestic Government Debt Securities (War Bonds) During Martial Law, which was passed and took effect on 8 March 2022.

The NBU has acquired military domestic government debt securities under an agreement with the Ministry of Finance of Ukraine. The central bank has not included these purchases into the summary of its weekly auctions to sell these securities.


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