With or without IMF money: NBU predicts two scenarios for Ukraine

REUTERS The National Bank of Ukraine (NBU) says two scenarios are possible in Ukraine, which development depends on whether or not progress is made with structural reforms that are required for maintaining macroeconomic stability and receiving financing from the IMF. "Decisions important for continuing cooperation with Ukraine&#39;s official creditors would be taken in the near future. If the country steps up its efforts to carry out reforms, there is a good chance of receiving a US$2 billion tranche and related financing this year, as outlined in the NBU&#39;s baseline macroeconomic scenario," reads a statement in the summary of the May 23 discussion on the key policy rate at the NBU Monetary Policy Committee (MPC), posted on the NBU website. At their meeting, the MPC members unanimously agreed that the key policy rate should remain unchanged, at 17% per annum. If the baseline scenario, which is based on continued cooperation with the IMF, materializes, the NBU should continue relaxing foreign exchange (FX) controls in order to promote economic growth. If structural reforms are delayed and no financing arrives from Ukraine&#39;s official creditors, an alternative scenario will play itself out. Read alsoUkraine&#39;s international reserves drop to US$18.1 bln in May "The absence of financial support from official creditors increases the vulnerability of the country&#39;s economy and financial market, especially when access to global capital markets is limited," the NBU said in a statement. When implementing such a scenario, the National Bank may decide to raise the key policy rate again in order to bring inflation back to the target, use FX market interventions to smooth out exchange rate fluctuations, as well as impose FX restrictions. However, such restrictions are seen as a very unfavorable measure that could be applied as the last line of defense when there are serious threats to financial stability. "Most committee members agreed that the probability that the key policy rate would be cut in the current year was low. The key policy rate can only be decreased when there are clear signs that inflation is steadily decreasing to its target value," reads the statement. As UNIAN reported, the National Bank in May decided to keep its key rate at 17% per annum, as a month earlier. In April, the central bank also decided to keep the rate at 17% per annum after its increase four times in a row to 17% per annum in March 2018, 16% in January 2018, 14.5% in December 2017, and 13.5% in October 2017. The NBU&#39;s highest rate was 30% per annum, which was in effect from March 4 to August 28, 2015. Inflation in Ukraine in April 2018 slowed to 13.1% year-over-year (y-o-y) against 13.2% recorded in March 2018 y-o-y.

With or without IMF money: NBU predicts two scenarios for Ukraine

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