Financial sector news

This is a key condition of the new four-year Extended Fund Facility (EFF) program, which Ukraine and the International Monetary Fund have agreed upon at the staff level.

Despite the ongoing war and significant pressure on the economy, the IMF noted the efforts of the Ukrainian authorities to maintain macrofinancial stability. At the same time, the Fund emphasizes that further support requires giving the hryvnia more market freedom.
The Fund's press service statement emphasizes that the NBU should gradually abandon strict control over the exchange rate and allow it to more accurately reflect fundamental economic conditions. This will help make the exchange rate a “shock absorber” — a mechanism that mitigates external and internal shocks while preserving foreign exchange reserves.

According to the IMF, the National Bank should continue to pursue a policy aimed at disinflation and strive to achieve a target inflation rate of 5% over a three-year horizon.

The National Bank of Ukraine continues to implement monetary policy to achieve the goals of maintaining macroeconomic stability and ensuring sustainable disinflation. The NBU is committed to reducing inflation to a target of 5 percent over its three-year policy horizon, while allowing greater exchange rate flexibility to adjust to fundamentals and strengthening the role of the exchange rate as a shock absorber, thereby also helping to maintain adequate central bank foreign exchange reserves," the IMF emphasizes.

In other words, the exchange rate should become a kind of “safety cushion” that absorbs economic shocks, instead of the NBU spending precious foreign exchange reserves to artificially maintain the exchange rate at a certain level.