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EBA General Meeting with Valeria Gontareva, the Governor of the National Bank of Ukraine

01.02.2016, 11:00am - 12:30pm

“Our currency reflects the condition of our balance of payments”

On 1 February we met the Governor of the National Bank of Ukraine Valeria Gontareva to hear the latest news from the banking sector.

So, what is the current progress?

- Disinflation trend: consumer inflation slowed to 43.3% by the end of 2015 from over 60% in April.

- In 2015, our current account was almost balanced – there was only a small deficit of $ 0.2 billion as opposed to $ 4.6 billion in 2014.

- Ambitious plan to build up international reserves to $ 18 billion in 2015 could not be implemented due to the shift of IMF funding schedule. The expected volume of international reserves at the end of 2016 is $ 19.6 billion.

- New financial inflows from international financial organizations, which would ensure stability in the financial market, are expected soon (2-3 weeks after Ukrainian side sends a memorandum to the IMF).

- National Bank adheres to a flexible exchange rate of the hryvnia. It uses interventions at the foreign exchange market to smooth excessive fluctuations caused by situational factors, but does not oppose the influence of fundamental factors on the FX rate.

- Banks are allowed to achieve the zero capital adequacy ratio by April 2016.

- 20 largest banks have completed stress tests.

- The vast majority of the banks have disclosed information about owners.

- Capitalization of state banks is being completed.

What still needs to be done – main challenges & prognosis for 2016?

- According to the NBU forecasts, real GDP will grow by 1.1% in 2016 (forecast downgraded from 2.4%).

- Consumer inflation will slow to 12% at the end of 2016. This is not only a forecast of NBU, but it is its goal, which central bank aims to achieve with the help of the monetary policy.

- The current account deficit will grow to $ 2.5 billion in 2016 due to unfavorable external conditions. Namely - the decline of commodity prices, new restrictions in trade with Russia and transit through its territory.

- The current account deficit may be higher in case two risks occur: first, deeper slump of prices for Ukrainian exports; secondly, more significant devaluation of currencies of Ukraine’s trading partners. These risks, as a consuquence, are key to the dynamics of the hryvnia.

- The liberalization of currency regulation is not time-based, but condition-based. One of the crucial conditions is ongoing cooperation with the IMF. Accordingly, the removal of restrictions has been moved similarly to the time schedule for the IMF funding.

- The liberalization of currency regulation is to be completed not only by the removal of temporary administrative constraints. It also implies eventual liberalization of the entire system of currency regulation. First of all, relating to current account operations and foreign direct investment inflows.

Reform efforts of the National Bank of Ukraine are generally helpful in restoring the health of the economy.

However, hard times are not yet over and now we know the most pressing issues that require action.

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