The National Bank of Ukraine returns to a floating exchange rate: Strategy approved
As part of its commitments to the International Monetary Fund (IMF), the Board of the National Bank of Ukraine has approved a strategy that includes easing currency restrictions, moving to greater exchange rate flexibility, and returning to inflation targeting.
This is stated in the NBU’s announcement.
“The development of this Strategy was a key component of the Extended Fund Facility program with the IMF, which we planned to implement by the end of June 2023. Therefore, the approval of the Strategy, which was previously agreed with IMF experts, indicates that Ukraine has fulfilled another important task,” the NBU said in a statement.
The strategy includes three main areas: easing currency restrictions, moving to a more flexible exchange rate, and returning to the principles of inflation targeting. Each area describes in detail the sequence of steps, key priorities, principles and prerequisites for implementing the Strategy.
It is important to note that the implementation of the Strategy will not be tied to specific dates, but will depend on the existence of the necessary preconditions. “For example, in June, we managed to ease some currency restrictions due to the existing preconditions. At the same time, the preconditions for the next steps are still being formed,” the NBU explained.
In implementing the Strategy, the NBU will take into account the results of the analysis of the effectiveness of previous steps, as well as the potential impact of the planned changes on macroeconomic policy, including fiscal policy and debt stability.
“This approach will allow us to ensure a consistent and organized return to inflation targeting with a floating exchange rate, while minimizing risks to price and financial stability and maximizing the potential for a sustainable economic recovery,” the NBU emphasizes.
They also emphasized that the stability of the hryvnia exchange rate will remain a key priority for the NBU throughout all stages of the Strategy’s implementation. “Thus, the NBU will continue to maintain tight monetary conditions by ensuring a high level of real interest rates, which will ensure the attractiveness of hryvnia assets and help minimize risks to exchange rate stability,” the NBU explained.
The NBU will publish a public version of the Strategy on its official website by July 7, 2023.
