Natalia Zinets

KYIV (Reuters – Ukraine is open to talks with the International Monetary Fund about a program in April that would reassure market shaken by Russia’s tensions, Kyrylo Shevchenko, Central Bank Governor told Reuters.

Shevchenko spoke late Monday night in his office. He said that he would not impose any administrative restrictions to the hryvnia money. These would have a counterproductive effect by agitating the markets instead of offering stability.

He said that the central bank will remain “hawkishly” focused on combating inflation. This leaves open the possibility for raising interest rates above the 11% planned increase at March’s monetary policy meeting.

After Russia announced its deployment of troops in Moscow-controlled regions, the threat of major conflict in Ukraine has ravaged Ukrainian assets. On Tuesday morning, the hryvnia plunged by over 1%.

The Ukrainian president Volodymyr Zelenskiy has stressed that the economic fallout must be addressed. Since January, the central bank sold over $1.4 billion worth of forex reserves in order to maintain stability for the hryvnia.

Shevchenko stated that “we need to talk about a new program with the IMF right now, there’ll be a very strong platform – spring meeting of IMF in April.”

In June, the $5 billion current stand-by will expire. Ukraine is expected to get the $2.2 billion remaining in the first half year. This includes $700 million in March.

Shevchenko declared that “it will be a signal for markets that we expect IMF missions to begin soon.”

Ukraine depends on these kinds of assistance, as high yield yields have made it difficult to borrow on the external capital markets.

He said, “We are hopeful that the country will be able to compensate for its complicated access to international markets in the coming months with sources of funding.”

NO RESERVATIONS ON THE CURRENCY-MARKET

Shevchenko stated that the central banking would maintain the floating exchange rate policy.

Since the beginning of this year, the hryvnia fell by 6% against USD due to outflows exceeding $600million from domestic bonds and higher demand from importers of energy.

Market volatility can be triggered by psychological and not macroeconomic factors according to the bank.

We are convinced there’s no reason to introduce administrative restrictions. Shevchenko stated that administrative restrictions would, in our view, cause a stir.

He stated that the international currency reserves of $28 billion allow the bank to keep making interventions in order to reduce market fluctuations.

The National Bank doesn’t have a target or corridor for its exchange rate. According to him, the market’s supply and demand will determine how high or low the rate is.”

According to him, net international reserve volume fell below what was agreed upon in the memorandum between the IMF and Ukraine. However, he didn’t think that it would stop Ukraine from obtaining the next tranche.

He said that the IMF was open to discussion about a revised reserve target.

Shevchenko explained that it was “naturally not expected” that Ukraine would be required to borrow significant sums from its reserves to balance out fluctuations in currency at the start of 2022.

HAWKISH MONEY POLICY

Shevchenko indicated that the bank would continue to tighten monetary policies to lower inflation to within the target range at 5%. However, he felt that inflation was already high since September last year.

We stated that we had forecasted more rate increases and were ready to take further action if there is pro-inflationary pressure. He stated that we are prepared to tighten our monetary policy to return inflation to target.

To control persistently high inflation, the bank increased its rate six times to 10% since March. This is in contrast to the historic law of 6%. The rate of inflation fell to 10% and 10% respectively in December, January and September from the peak 11% recorded in September 2021.

Shevchenko answered a question about whether the central bank might raise its rate beyond the 11% target in March. This is why the National Bank is ready. The pocketbook of everyone is hit by high inflation.