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Ukraine Central Bank Statement

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By Yakiv Smolii, Governor, National Bank of Ukraine


Following the 2014 revolution in Ukraine the country is firmly on the path of reform, in line with our European integration ambitions as a prerequisite of long-term economic growth. The National Bank of Ukraine (NBU) is committed to supporting this by proving its mandate as an independent central bank and by delivering price and financial stability.

Ukraine is going through its third year of inflation targeting and has proved that it works under not only favourable conditions, but also when a central bank has to take unpopular measures, such as a tighter monetary stance. Headline inflation hit 13.7% in 2017, but we are confident that our move towards tighter monetary policy will bring it back to the target range (5.0% ± 1 pp) in 2019.

The NBU remains committed to a floating exchange rate. With benign external market conditions, macroeconomic recovery and support from IFIs, the NBU managed to increase international reserves to pre-crisis level, while preventing pressure on the hryvnia.

These macroeconomic conditions have also been conducive to the stable and profitable operation of the banking sector. Hryvnia deposits continue to grow. The rate of growth in retail lending has increased to 40%. However, renewal of corporate lending requires better protection of creditors' rights and solving toxic assets problem.

Since the economy is growing, inflation is going down and the banking sector is healthy, the NBU has set its sights on creating a favourable environment for all market players. For a quarter of a century, the Ukrainian economy has functioned according to restrictive FX legislation that discourage foreign investors and the development of domestic business. It is time to get the long-awaited freedom for FX operations in Ukraine. In June 2018, the parliament adopted new Law on Currency and Currency Operations, drafted by the NBU. It will be implemented in February 2019 and in a few months, Ukraine will become much more investor-friendly.

However, free movement of capital increases exposure to unpredictable shocks that can cause capital flight and threaten financial stability. Thus, the next step should be the introduction of tax regulation based on the implementation of the Action Plan on BEPS and integration into the global system of automatic exchange of tax and financial information.

Overall, the NBU has a clear strategic vision and a well-defined program for the coming years. In March 2018 for the first time, we presented a central bank strategy, with seven goals to achieve. Apart from maintaining low and stable inflation and ensuring a stable and efficient banking system, we will keep moving towards consolidated supervision of the entire financial sector.

The NBU has set an ambitious task in promoting financial inclusion. We must be proactive in facilitating the development of technologies intended to broaden financial services penetration, ensuring protection of the rights of its customers, and promoting financial literacy. It will make the financial sector more stable, improve quality of financial services and, together with the rest of the NBU's strategic goals, help to deliver the proper conditions for Ukraine's sustainable development in the future.