Speech of the Chairman of the National Bank Andriy Pyshny during a press briefing on monetary policy decisions


Good day, dear colleagues!

The Board of the National Bank of Ukraine decided to keep the discount rate at the level of 25% per annum, as well as to continue raising the standards for the formation of mandatory reserves by banks.

This will contribute to the further increase in the attractiveness of hryvnia assets, the maintenance of exchange rate stability and the gradual reduction of inflation.

Inflation has stabilized in recent months, although it remains at a high level.

According to the results of 2022, consumer prices increased by 26.6%. At the same time, during the last three months, the inflation rate in annual terms almost did not change. Stabilization of inflationary pressure was facilitated by de-occupation of territories, expansion of food supply and weaker consumer demand in the conditions of Russia’s energy terror.

Fixed tariffs for housing and communal services, a fixed exchange rate of the hryvnia, and the establishment of logistics kept inflation at bay. The measures of the National Bank, in particular the introduction of deposit instruments to hedge currency risk, as well as the limited amount of budget monetization contributed to the stabilization of the situation on the cash currency market at the end of 2022.

At the same time, price pressures remain significant due to the effects of war, including the destruction of businesses and infrastructure, disruption of production and supply chains. In addition, business costs continued to rise as a result of Russia’s energy terror. Inflationary expectations, despite stabilization, remained elevated.

Inflation will gradually decrease and remain manageable thanks to the measures of the National Bank and the government, as well as the support of international partners.

The National Bank predicts a slowdown in inflation to 18.7% in 2023. This will be facilitated by the maintenance of tight monetary conditions, a decrease in global inflation and weaker consumer demand in conditions of power outages. Receiving the announced volumes of international aid and joint actions of the National Bank and the government to activate the domestic debt market will make it possible to avoid emission financing of the budget deficit and balance the currency market.

In the coming years, inflation will slow down more quickly thanks to the reduction of security risks, the full recovery of logistics and the increase of harvests.

Economic recovery was interrupted by Russian terrorist attacks against energy infrastructure. As security risks decrease, Ukraine will return to sustainable economic growth in 2024-2025.

As a result of energy terror on the part of Russia, the decline of Ukraine’s GDP deepened in the IV quarter of 2022 (up to 35% in annual terms). Businesses in trade and the service sector adapted to power outages quite quickly. Thanks to this and the better results of the 3rd quarter, the estimate of the drop in real GDP in 2022 has been improved to 30.3%.

The National Bank expects a slight increase in real GDP in 2023 – by 0.3%. Deterioration of the forecast compared to October estimates due primarily to the consequences of energy terror, as well as a revision of the basic assumption regarding the duration of the preservation of security risks. The forecast assumes that during 2023, it will be possible to avoid significant additional destruction of the energy infrastructure, and business and the government will take effective measures to level the consequences of already destroyed capacities.

Reduced security risks, together with the resumption of full port operations, increased harvests, gradual restoration of production capacity, improved logistics and revival of domestic demand, including due to the return of forced migrants, will contribute to economic growth in 2024-2025. Soft fiscal policy will also play an important role in the future. Thanks to all these factors, the real GDP of Ukraine will grow by 4.1% in 2024, and economic growth will accelerate to 6.4% in 2025.

The arrival of international support and cooperation with the IMF will make it possible to finance a significant budget deficit, as well as to maintain international reserves at a sufficient level.

In 2022, Ukraine received more than 32 billion dollars. US international aid, of which more than 14 billion dollars. The USA made grants. Thanks to this, it was possible to finance most of the deficit of the consolidated budget, as well as to increase international reserves to 28.5 billion dollars. USA at the end of the year. The current level of reserves is sufficient to ensure the stability of the foreign exchange market.

Given the already announced volumes of international aid and progress in negotiations with the IMF, the total amount of official financing in 2023 may exceed $38 billion. USA. This will make it possible to avoid emission financing of the budget deficit in 2023 and support international reserves at a sufficient level, even in conditions of longer preservation of high security risks. It is expected that by the end of 2023, international reserves will amount to about 27 billion dollars. The US will continue to grow.

A key assumption of the forecast is a significant reduction in security risks from the beginning of 2024. The main risks remain a longer period of full-scale military aggression by Russia, as well as further destruction of critical infrastructure facilities.

The National Bank revised the key assumption of the forecast regarding the security situation in view of the intensification of hostilities and the increase of terrorist attacks against critical infrastructure. The base scenario of the new macro forecast foresees a significant reduction in security risks from the beginning of next year. Accordingly, the full unblocking of sea ports and the reduction of Ukraine’s risk premium have also been postponed. The intensification of the war and the higher-than-expected shortage of electricity due to terrorist attacks in Russia could significantly limit economic activity and increase inflationary pressure.

Other risks are also relevant for the forecast, the realization of which may also lead to a revision of key macroeconomic indicators.

Instead, the rapid implementation of Ukraine’s recovery plan with the corresponding influx of official and private financing for reconstruction can significantly accelerate economic growth.

In order to return inflation to a path of steady decline, as well as maintain exchange rate and macro-financial stability in conditions of a high level of uncertainty, the Board of the National Bank decided to keep the discount rate at the level of 25%.

At the same time, the National Bank additionally increased the requirements for mandatory reserves of banks, as well as announced in December. Yes, from February 11 to 5 p. the standards for the formation of mandatory reserves by banks for demand funds and funds in the current accounts of legal entities and individuals, as well as for deposits and funds in the current accounts of other non-resident banks and loans received from international (except financial) and other organizations In particular, from 5% to 10% in national currency and from 15% to 20% in foreign currency.

Additionally, from March 11, they will be increased by 10 cents. p. regulations on the formation of mandatory reserves by banks for funds on demand and funds in the current accounts of individuals in both national and foreign currencies. However, this part of the reserves will not be covered by the benchmark OVDP coverage mechanism.

The National Bank expects that these measures will help reduce the liquidity surplus in the banking system. This, in turn, will encourage banks to compete more actively for depositors’ time funds and, accordingly, will contribute to an increase in rates for hryvnia assets and an increase in the share of time deposits.

As a result, the stability of the foreign exchange market to situational factors will increase, and the National Bank will be able to ease administrative restrictions for business and the population in the future.

The updated forecast envisages maintaining the discount rate at the level of 25% at least until the end of the first quarter of 2024. The National Bank is ready, if necessary, to apply further measures to avoid emission financing of the budget deficit, increase the attractiveness of hryvnia assets, strengthen the stability of the foreign exchange market, and create appropriate prerequisites for easing administrative restrictions.

Thank you for attention!

Glory to Ukraine!

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