NBU Council Approves Monetary Policy Guidelines for 2022 and Medium Term

At its meeting today, the NBU Council approved the Monetary Policy Guidelines for 2022 and the medium term. 

This document is based on the proposals of the NBU Board and reiterates the goals, principles, and monetary policy instruments laid out in the previous versions of the Monetary Policy Guidelines. It is fully in line with the regulator’s Monetary Policy Strategy and Ukraine’s international commitments, in particular the provisions of the Memorandum with the IMF on Economic and Financial Policies. This will increase the consistency and predictability of the NBU’s monetary policy.

"We continue to be committed to the principles on which the NBU has been building its monetary policy since it began to target inflation. The central bank’s commitment to these principles has already proved effective. The invariability of the inflation target and the principles of monetary policy will help stabilize inflation expectations and strengthen the efficiency of monetary transmission," said NBU Governor Kyrylo Shevchenko.

Under the Monetary Policy Guidelines for next year, the NBU will thus continue to:

• pursue its inflation targeting policy to achieve and ensure price stability.
• maintain price growth at the level of 5% ± 1 pp in the medium term.
• use the key policy rate as the main monetary policy instrument. If necessary, the central bank may use other monetary policy instruments provided by the Law of Ukraine On the National Bank of Ukraine.
• pursue the floating exchange rate regime without targeting a specific exchange rate level or range.

Inflation targeting will remain flexible in order to strike the right balance between ensuring price stability and promoting economic growth and financial stability. The NBU will allow a temporary deviation of inflation from the set target in certain short-term periods, as long as it does not threaten to unbalance inflation expectations and does not prevent inflation from returning to its target over an acceptable monetary policy horizon.

The main criteria for monetary policy success will remain the anchoring of inflation expectations to the inflation target and the alignment of actual inflation with its target in the medium term. 

Given the need to develop the FX market, the NBU will seek to minimize the use of its FX interventions. The central bank will also press forward with its currency liberalization efforts, the ultimate goal of which is the transition to the free movement of capital. This will make it easier to do business in Ukraine and improve its investment climate, an important driver of sustainable economic growth.

"It is imperative that, while remaining consistent and predictable, the NBU’s monetary policy be flexible enough to adapt to the challenges of our time, in particular to the changing economic and financial market conditions. To this end, the Monetary Policy Guidelines have been supplemented with new sections about the NBU’s policy on virtual assets circulation and about incorporating climate change and the principles of sustainable financing into the monetary policy.

Thus, this is the first time that the regulator’s monetary policy roadmap has highlighted the importance of addressing environmental, social, and managerial aspects. These elements will help shape a powerful green economy in Ukraine, just as they did in leading European countries," said Kyrylo Shevchenko. 

Within its mandate, the NBU will make legislative efforts to ensure that the regulation and operation of the virtual assets market is in line with the pursuit of price and financial stability in Ukraine. This is important for ensuring sustainable economic growth. In addition, the regulator will pay due attention to monitoring and mitigating the risks associated with the spread of virtual assets, and establish effective controls over the circulation of virtual financial assets secured by currency valuables. 

The central bank is no stranger to the issues of climate change and the fight against air pollution, either. As such, the regulator will make every effort to take into account all environmental, social, and corporate governance aspects when making monetary decisions. This is important because in the long run, these factors will have a strong impact on the work of the monetary policy transmission mechanism and the development of Ukraine’s financial system and economy.

"To ensure sustainable economic growth, the NBU and the Ukrainian government will do their best to strengthen the coordination between the monetary and fiscal policies, carry out structural economic reforms, improve the availability of credit, and raise long-term investment resources. 

A vital part of this coordination remains to implement the Memorandum between the Cabinet of Ministers of Ukraine and the National Bank of Ukraine on Cooperation to Achieve Sustainable Economic Growth and Price Stability. The NBU will also work closely with the Cabinet of Ministers and other financial sector regulators to improve the operation of the financial intermediation mechanism, including by coordinating relevant efforts within the Financial Stability Council," said Bohdan Danylyshyn, Chairman of the NBU Council.

The NBU Governor emphasized that the provisions of the Monetary Policy Guidelines for 2022 and the medium term maintain the consistency of the central bank’s monetary policy, while ensuring that the monetary policy and its tools are state-of-the-art and can meet modern challenges.

Within the period specified by law, the Monetary Policy Guidelines will be sent to the Ukrainian Parliament for information purposes.