On 29 June 2023, the Board of the National Bank of Ukraine approved the Strategy to Ease FX Restrictions, Transition to Greater Flexibility of the Exchange Rate, and Return to Inflation Targeting (hereinafter the Strategy).
The development of the Strategy is one of the structural benchmarks under the IMF-supported EFF program. This benchmark was scheduled to be met by the end of June 2023. The Strategy has been agreed with IMF experts, and its approval means that Ukraine has successfully completed yet another structural benchmark.
The development and implementation of the Strategy is also aimed at fulfilling the provisions of the Monetary Policy Guidelines under Martial Law, which the NBU Council approved in April 2022. The Guidelines envisage a gradual return to inflation targeting, as this regime ensures the simultaneous achievement of the NBU’s goals of price and financial stability and support of sustainable economic growth in the long run.
The Strategy consists of three main areas.
Those include an easing of FX restrictions, a transition to more exchange rate flexibility, and a return to the principles of inflation targeting. Each area contains a general description of the sequence of stages, key priorities, principles, and proper prerequisites for the implementation of the Strategy.
Steps to implement the Strategy will be tied to the formation of the prerequisites identified by it, not to specific deadlines.
The NBU will implement the Strategy in a consistent, step-by-step manner while meeting all prerequisites. Specifically, the prerequisites that have already been formed have enabled the NBU to relax a number of FX restrictions in June. Meanwhile, prerequisites for next steps are still being formed.
In addition, during the Strategy’s implementation, the NBU will take into account the results of a thorough analysis of the effectiveness of previous steps and the potential impact of making planned changes in each area on changes in other areas, as well as on other aspects of macroeconomic policy (including on the fiscal position and debt sustainability).
By taking this approach, the central bank will return to inflation targeting with a floating exchange rate in an orderly, consistent way that will minimize risks to price and financial stability and maximize the potential for a sustainable economic recovery.
Exchange rate sustainability will remain an important element of achieving the NBU’s goals at every state of the Strategy's implementation.
Accordingly, the NBU will continue to pursue a tight monetary policy by maintaining a sufficiently high level of real interest rates and thus ensuring that hryvnia-denominated assets remain highly attractive and that risks to exchange rate sustainability are minimized.
A publicly available version of the Strategy will be posted on the NBU’s official website by 7 July 2023.