Ukraine’s central bank, the National Bank of Ukraine (NBU), aims to bring inflation to the target of 5 percent in the coming years and return the role of shock absorber to the exchange rate, the central bank announced in a published Basic Principles of Monetary Policy.
The NBU will apply flexible inflation targeting to maintain price stability. It wants to maintain a moderate rate of inflation in 2024 and return it to the 5 percent target “in the coming years.” The policy horizon should not extend three years, but the NBU did not specify when exactly it wants to bring inflation back to target.
JOIN US ON TELEGRAM
Follow our coverage of the war on the @Kyivpost_official.
The reason for this is that the central bank will determine the policy timing “flexibly.” The pre-war timing for inflation targeting used to be 9-18 months.
“It will take into account the need to balance between facilitating the adaptation of the economy and maintaining its recovery, as well as maintaining control over inflationary expectations,” the press release said.
Control over expectations also involves keeping exchange rate expectations under control and maintaining confidence in the hryvnia. If the devaluation and inflation get out of control, NBU’s reserves will be at risk. However, the National Bank did not indicate any plan B or worst-case scenario.
“The NBU will help maintain real interest rates on term hryvnia instruments, in particular deposits, at a sufficiently high level to ensure the protection of hryvnia incomes of the population against inflation,” the NBU reported.
Ukrenegro’s Supervisory Appoints Long-Time Employee as Acting CEO
Ukraine’s National Bank also aims to return the key rate’s role as a policy anchor. Since Russia began its full-scale invasion against Ukraine in February 2022, the key rate has lost its previous role. The NBU is currently trying to return the key rate’s anchoring role by tying it to the rate of certificates of deposit.
You can also highlight the text and press Ctrl + Enter
