REUTERS
Revaluation, along with a balanced fiscal policy, has become one of the factors of the rapid decline in the state debt-to-GDP ratio.
The National Bank of Ukraine (NBU) says the effect of strengthening the hryvnia, Ukraine's national currency, in 2019, together with low energy prices, will keep inflation below the target range for most of 2020, but it will further accelerate to the medium-term goal at 5%.
That is according to the NBU's January 2020 Inflation Report, published on the regulator's website on February 6.
Referring to the experience of other countries that have successfully reduced inflation after the introduction of the inflation targeting regime and went through a period of strengthening their currencies, the NBU noted that the negative effects of revaluation in a consistent macroeconomic policy are predominantly short-term, while benefits are long-term and favorable for sustainable economic growth.
In Ukraine, the strengthening of the hryvnia has become the major factor in reducing inflation to the target at about 5%, while stable and low inflation is required for long-term growth.
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On the other hand, the strengthening of the hryvnia caused a decrease in exporters' income in hryvnia equivalent and led to budget revenue losses. But the NBU considers such consequences to be ambiguous since the price of imported raw materials dropped, while the competitiveness of Ukrainian companies in attracting labor improved.
Revaluation, along with a balanced fiscal policy, has become one of the factors of the rapid decline in the state debt-to-GDP ratio, which has a positive effect on the assessment of risks of investing in Ukrainian assets and sovereign ratings. As a result, the cost of servicing the new debt has decreased, while its currency composition has improved.
As UNIAN reported earlier, the Ukrainian hryvnia in January weakened by 5.7% against the U.S. dollar, to UAH 25.03, and by 4.7% against the euro, to UAH 27.66 per euro.
Ukraine's national currency in 2019 strengthened against the U.S. dollar by 14.5%, to UAH 23.69 and against the euro by 16.7%, to UAH 26.42.
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In late January, the National Bank revised downwards its forecast for consumer price growth in Ukraine in 2020 to 4.8% from 5% previously projected. The forecast for 2021 remained unchanged, that is, at 5%. The regulator expects a 5% inflation rate in 2022.
In 2019, inflation in Ukraine slowed to 4.1%, a six-year low in annual terms, sliding below the NBU's medium-term target at 5%.