Ukraine`s chief banker announces acceptable inflation

NBU Governor Valeriya Gontareva says that the National Bank of Ukraine (NBU) plans to use inflation targeting tools to ensure that headline inflation in Ukraine stays at 12% by the end of 2016, and at 8% by the end of 2017, according to Ukraine`s weekly newspaper Zerkalo Nedeli (Mirror Weekly).
This was announced at a meeting with Chairman of the Managing Board of Raiffeisen Bank International Karl Sevelda and Governor of Raiffeisen Bank Aval in Ukraine Volodymyr Lavrenchuk, reported.
”The parties also discussed the reform of Ukraine`s financial sector, as well as the economic situation in the country and the EU. The NBU governor suggested that the heads of Raiffeisen Bank consider the possibility of resuming lending to Ukraine,” the newspaper wrote.
The U.S. Central Intelligence Agency earlier estimated last year`s inflation in Ukraine at 49% as compared to the previous year, thus placing Ukraine the last in the ranking of the 225 countries that have provided inflation data.
In February, Ukraine saw deflation, with a drop in consumer prices by 0.4% as compared to January, according to the State Statistics Service.
Professor Anatoliy Halchynskyi, an advisor to the presidents of Ukraine (1994-2004), chairman of the NBU Council and the National Institute for Strategic Studies (2000-2005), says that the NBU`s approach in its monetary policy actually ”freezes” crisis-related processes instead of facilitating economic recovery.
According to the expert, the classical model of inflation targeting has proved to be functionally vulnerable in transition economies.
To curb inflation, on the one hand, the supply of money should be limited, but on the other hand, it should be sufficient. The NBU does not know how to solve this problem, according to the expert.
”There should be the real interest of the government and the NBU in a significant reduction of inflation. As long as inflation tax remains one of the most important factors for solving fiscal problems, all sorts of speculations about the effectiveness of the policy of targeting will remain purely declarative,” the expert sums up.

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