The National Bank of Ukraine will aim to ensure the stability of the currency market as part of its flexible inflation targeting policy, which seeks to bring inflation back to the target of 5% over the next three years, stated NBU head Andriy Pyshnyy.
"You won't hear any guidelines for the next year from me. However, I can say that we will strive to ensure the stability of the currency market. This means: do not expect us to allow the exchange rate to skyrocket. It is crucial for the NBU to fulfill our key task – to return inflation to the target of 5% in the coming years," he said in an interview with Interfax-Ukraine.
Pyshnyy noted that the National Bank will achieve this by, among other things, maintaining the ability for the population to protect their funds from inflation.
"This means that if you deposit your hryvnia in a bank today, then in a year, taking into account the interest that will be credited to you, you should be able to purchase no less goods and services than you can now," he explained.
Commenting on the fact that since the beginning of the year until September 24, the net purchase of currency by the population reached $8 billion, while the population's deposits increased by 68.7 billion UAH during this time, including in hryvnia – by 39.8 billion UAH, or eight times less, the head of the NBU stated that it is impossible to ensure absolute attractiveness of the hryvnia in the eyes of all economic agents.
"People have a choice. When I hear: look how the demand for foreign currency is growing, I say: it has always been and will always be with us. At the same time, we see that the volumes of hryvnia deposits and government bonds are also growing, despite the war. Trust in hryvnia assets remains, and the population has doubled its investments in government bonds," Pyshnyy commented.
In his opinion, there will always be a certain demand for foreign currency, as people have the desire to diversify risks, especially during wartime. "Both the migration factor and anxiety are at play," he added.
At the same time, the head of the NBU emphasized that during the war, it has been possible to maintain the hryvnia as a means of measuring value, payments, and savings, meaning that the hryvnia continues to perform its functions as money, and it has not been replaced by foreign currency.
"Thanks to the fact that there is a functioning national currency (IF-U), the economy can flexibly adapt to changing conditions, the National Bank can fulfill its mandate, and the Ministry of Finance can finance the budget through debt instruments," Pyshnyy noted.
He stated that the situation is gradually returning to normal, one indicator of which is the growth of the hryvnia credit portfolio of businesses, which now exceeds the volumes prior to the full-scale invasion, the level of the discount rate is at the level of the pre-COVID 2019 rate, and the interest rate on loans to legal entities is even lower than it was then.
"Yes, we are currently seeing certain inflationary processes. But the National Bank will work to bring inflation back to the target of 5% within the policy horizon, which we have slightly extended (to three years – IF-U). In September, the NBU Council officially approved this in the updated Key Principles of Monetary Policy. This is indeed a very ambitious statement given the conditions of martial law, the budget deficit we have, and the ongoing war," the head of the National Bank also said.
As reported, after transitioning to a managed flexibility regime on October 3, 2023, the official exchange rate of the hryvnia devalued by 12.7%.
Inflation in Ukraine fell to 5.1% in 2023 after a spike in 2022 to 26.6% from 10.0% in 2021. According to data from the State Statistics Service, as of the end of September, inflation on a year-on-year basis accelerated to 8.6% from 7.5% at the end of August, 5.4% at the end of July, and 4.8% at the end of June.