NBU sees risks of capital outflow from Ukraine

Further tightening of the U.S. monetary policy will increase risks of a significant capital outflow from emerging economies, including Ukraine.

"These risks will significantly increase the need for Ukraine to enter the foreign borrowing market by the end of the year, regardless of whether our country's cooperation with the International Monetary Fund continues or not," according to a financial stability report by the National Bank of Ukraine.

The National Bank noted that the U.S. monetary policy was getting tougher, which could cause capital outflow from high-risk assets and emerging economies, while signs of the implementation of this scenario are being observed in recent months.

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Under the impact of tight monetary policy, the U.S. dollar is strengthening, while the currencies of emerging economies are becoming cheaper, and countries react in different ways.

"According to the estimates of the International Institute of Finance (IIF), Ukraine, China, South Africa, Turkey and Argentina are the most vulnerable to changes in the 'appetite for risk' among investors and the capital outflow. The market already reflects the weak position of the latter two countries: since the beginning of the year, their Eurobonds have significantly fallen in price," the report says.

UNIAN memo. On June 13, the U.S. Federal Reserve decided on further tightening of the monetary policy.

The Federal Open Market Committee "expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced."

"In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation."