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The Council of the National Bank of Ukraine Approves the Monetary Policy Guidelines for 2018 and the Medium Term

As required by the Constitution of Ukraine and the current legislation, at its meeting, the Council of the National Bank of Ukraine has adopted the Monetary Policy Guidelines for 2018 and the Medium Term (hereinafter – the Policy Guidelines), which were developed based on proposals of the Board of the National Bank of Ukraine. In addition, the Council approved the NBU’s administrative cost estimate for 2018.

“I believe the Monetary Policy Guidelines to be discussed and approved today are the result of joint work of the NBU Council, the NBU Board, scientists and experts,” said Bohdan Danylyshyn, Chairman of the NBU Council, as the meeting started. “Adoption of this document was preceded by wide discussions among businessmen, scientists, non-governmental organizations, and experts. We received more than 1500 proposals from nearly 80 organizations, scientific institutions, and businesses. Together we have managed to prepare a document defining the NBU’s monetary policy goals and priorities for the next year and the medium term. To make the monetary policy clear and predictable for the market, among other we followed the consistency principle when developing the Policy Guidelines. It’s important that implementation of the Policy Principles will contribute to further disinflation, financial stability, and economic growth acceleration.”

The NBU will remain committed to the inflation targeting regime. The regulator’s main objective is to ensure stability of the national currency by delivering and maintaining price stability in the country. The hryvnia’s purchasing power will be supported by keeping the inflation rate low and stable in the mid-term (from three to five years), with inflation measured on the basis of the consumer price index.

The NBU Council emphasizes that the target range for annual CPI change sets inflation on a gradual downward trajectory to reach the mid-term target. The inflation targets were published in the Policy Guidelines for 2017 and the Medium Term and remain unchanged:

  • December 2018: 6% ±2 pp
  • December 2019: 5% ±1 pp
  • December 2020: 5% ±1 pp.

At the same time, the NBU Council has introduced a quarterly inflation growth target for the first time in Ukraine’s modern history.

The NBU Council stresses the need for gradual disinflation to reach the mid-term target of 5%.

Meeting the inflation targets will help achieve the expected real GDP growth, which is projected to speed up to 3% in 2018, and 4% in 2019 according to forecasts by the Government and the NBU.

The exchange rate policy will support the NBU’s efforts to achieve its priority objective. To that end, the NBU will maintain a floating exchange rate, which means that monetary policy will not be aimed at delivering a fixed exchange rate level or band.

When conducting the exchange rate policy, the NBU will bear in mind that there is a link between inflation and exchange rate fluctuations, and that changes in the exchange rate may affect financial stability.

In order to bolster lending recovery, the NBU will elaborate its tools to support the banking system’s liquidity. If inflation risks abate, the NBU will get less focused on mobilization operations when regulating the banking system’s liquidity. In order to prevent the monetary risks of demand inflation, the NBU will also factor in monetary aggregate developments when making monetary policy decisions.

At the same time, the NBU’s measures to promote real sector lending alone are not sufficient to ensure a lasting economic growth. This requires shifting to the innovative economic development model and firstly achieving qualitative changes in the economy rather than focusing on quantitative objectives of economic growth. It calls for coordinated actions by all public bodies of various levels and concentration of investment in industries that are the most promising in the long run.

To maintain financial stability, the NBU will be supporting the soundness of Ukraine’s entire financial sector and its segments, ensuring the effective redistribution of resources by the financial system, helping market players assess and perceive risks appropriately, boosting the financial system’s resilience, and reducing the probability of systemic crises. The NBU will meet its objective of promoting financial stability through adequate micro- and macroprudential regulation and supervision.

Since sustainable economic growth is enabled through successful reforms, the NBU and the Government of Ukraine will make every effort to remain committed to the economic and financial reform path as envisaged by cooperation agreements with international financial institutions.

The NBU will seek to facilitate coordination between monetary policy and the Government’s economic and fiscal policies since these policies are interconnected, and taking into account direct links between the country’s monetary policy, real production, fiscal system, and balance of payments.

The Policy Guidelines were sent for information to the Verkhovna Rada of Ukraine within the timelines set by the legislation.

The text of the Monetary Policy Guidelines for 2018 and the Medium Term is available here.

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