Bringing stability to the banking system seems to be an easier task for Ukraine's central bank than restoring trust and pumping money into the economy via the renewal of lending and savings.
The highest monthly
inflation rate since 1995 occurred in March at 10.8 percent. Annual inflation
in April was estimated at 45 percent, but will land at 30 percent by the end of
2015, according to National Bank of Ukraine governor Valeriia Gontareva. World Bank report issued on April 29 puts the figure at 32 percent in 2015.
“After inflation
peaks in first half of 2015, it will be contained by low consumer demand and
low commodity prices,” Gontareva said at a symposiumin Kyiv on April 24. “Right
now, our economy has already reached its lowest point and growth will start
from the second half of this year.”
The current account
deficit – the difference between exports and imports – is expected at minus 1
percent in 2015, alongside a financial account surplus, which will contribute
to the hryvnia’s appreciation. Gross domestic product is expected to fall 7.5
percent in 2015 but World Bank estimates 2 percent growth already
in 2016 under 12 percent inflation.
“The latest
research by the European Business Association and others showed that if the war
doesn’t resume, most likely, the worst point (for the economy) is behind,”
Economy Minister Aivaras Abromavicius said on April 26. “Two months of a stable
exchange rate and even the hryvnia’s appreciation are encouraging, as the exchange
rate was the major problem for business.”
Abromavicius also praised
the efforts of Gontareva and her “dream team” in fostering
stabilization. “I believe that all of the banking sector’s problems will
be solved in the upcoming months and we will soon recall them as a thing of the
past,” he said. He particularly cited a bill that the central bank initiated
that is expected to contribute to the elimination of money laundering schemes.
Gontareva also said that
the NBU will not finance the budget deficit under any circumstances and will not
return to a pegged exchanged rate.
The interbank rate has
already started to stabilize at around Hr24 to the U.S. dollar due partially to
administrative measures that the NBU started introducing in 2014.
They include foreign
currency restrictions,and holding key interest rates at 30 percent. They, in
turn, havehalted inflation and reduced panic among businesses and consumers.
However, the prolonged
restrictions are painful for businesses and further undermine trust in the
banking system, some experts say. Vladimir Dubrovskiy, expert at Center for
Social and Economic Research, says the lack of the trust is also diminished by
radical and often unexpected actions of the central bank.
“Gontareva is
short on ideas about how to restore trust to the banking system, apart from
cleaning it of junk banks,” he says. “This is the right thing to do, but not
enough.”
Some administrative
measures that were meant to be in place only temporarily have already been in
place for a year, Dubrovskiy says. One more month would not change much now, he
said, adding that the NBU is in fact ready to remove the administrative
restrictions but the International Monetary Fund doesn’t approve yet.
“When the
currency exchange market shows signs of stabilization and inflation
expectations become truly anchored, the national bank will be able to start
gradual easing of monetary policy by lowering the key rate and abolishing
administrative restrictions,” Gontareva said.
Instruments to restore
trust are at large beyond the reach of the NBU, though, Dubrovskiy said.
Some measures would require
introducing an economic section into the Constitution. They would include
setting budget deficit limits, prohibiting the NBU to finance the budget via
borrowings, instead of the “provision of social guarantees” currently
stated in the document, he said.
Kyiv Post staff writer
OlenaGordiienko can be reached at [email protected].
