At a meeting, the Council of the National Bank of Ukraine (hereinafter – the Council) heard a Progress Report on the implementation of the Monetary Policy Guidelines (hereinafter – the Board) in H1 2017. Following this meeting, the NBU Council has approved an assessment of the Board’s performance and Recommendations to the Board and the Cabinet of Ministers of Ukraine The NBU Council also took on board the NBU Board‘s Proposals to the Monetary Policy Guidelines for 2018 and Medium Term.
In opening the meeting, Chairman of the NBU Council Mr Bohdan Danylyshyn said: “In spite of challenging conditions under which Ukraine has operated in recent years, the selected reform path has proved viable and successful owing to the country’s underlying economic strength and commitment to the market economy principles underlying the country’s development, which were by underpinned by prudent and steadfast actions by the government leadership. The public authorities pursue policies aimed at bringing about a structural transformation of the economy, enhancing the effectiveness and efficiency of public governance and its optimization, ensuring harmonization of domestic laws with EU legislation. The Ukrainian economy is turning the corner and returning to a stable growth path.
Today, we will hear a Progress Report on the NBU Board’s activities and hold constructive discussions to in an effort to carry out an impartial assessment of the NBU Board’s performance with regard to the implementation of the Monetary Policy Guidelines, which were developed and approved last year. I believe that the NBU Board has made progress in many areas, although inflation risks have increased markedly. Meanwhile, it should be taken into account that the Monetary Policy Guidelines envisage that inflation may deviate from the pre-announced targets as it is influenced by external and internal shocks, which are outside the scope of the monetary policy’s control. Therefore, in the context of persistent external risks, it is necessary to set the stage for sustainable economic growth under the new economic conditions”.
In H1 2017, monetary policy was implemented as the economy kept growing. This somewhat stimulated lending in domestic currency, although lending activity remained weak. However, the loan portfolio of economic entities remained almost unchanged. Non-bank lending is recovering and the capital keep flowing into non-regulated markets.
In spite of a decline in deposit rates, the growth in deposits was underpinned by an improvement in the financial standing of enterprises and increasing household income. These developments were accompanied by a further de-dollarization of both loans and deposits, thus reducing the vulnerability of the domestic economy to external shocks.
As the situation stabilizes and improves, the NBU took measures to ease monetary policy by gradually cutting the key policy rate. The rate cuts were transmitted to lower interest rates, suggesting the efficiency of the interest rate channel of the transmission mechanism of monetary policy.
Based on the analysis and monitoring of money market developments, the NBU Council pointed to increasing inflation risks. This requires the NBU to actively use monetary policy instruments to contain inflation within the target range of 8% ± 2 pp.
The NBU Council also took on board the NBU Board‘s Proposals to the Monetary Policy Guidelines for 2018 and Medium Term with the aim of preparing a final draft, which will be approved and submitted to the Verkhovna Rada of Ukraine.
The Council encourages academia and experts to participate in deliberations to discuss this important document essential for the economic development.
The meeting was held with the participation of Chairman of the Council Danylyshyn, NBU Acting Governor Yakiv Smolii, Directors of the NBU Departments, Deputy Chairman of the Parliamentary Committee on Finance and Banking Mr Dovbenko, as well as experts and academia.
The Resolution of the NBU Council and Recommendations to the Board will be published on the NBU’s website in the coming days.