MODERNIZATION OF UKRAINE’S MONETARY POLICY IN THE CONTEXT OF ECONOMIC STABILIZATION AND POST-CRISIS GROWTH

Abstract

The problems of monetary policy modernization in the context of formation of its mediumterm priorities and response to crisis phenomena are considered. Particular attention is paid to
the central bank’s mandate and policy objectives. Methods for estimation are proposed and the
real monetary conditions index (RMCI) for Ukraine is calculated. Based on RMCI cross-country comparisons, it is concluded that Ukraine is the leader among the countries of Central and
Eastern Europe in the degree of tightening of monetary conditions (both in terms of interest
rate and exchange rate). Drawbacks in the design of current monetary policy in Ukraine are
identifi ed, as a result of which «excess» liquidity accumulates in the banking system during the
period of acute need for loans, which contrasts sharply with the situation in other countries
where central banks channel huge resources to support liquidity of the fi nancial sector and
lending to the real sector. NBU’s models are examined and fi vefold superiority of the infl ation
target for the NBU as compared to economic growth target is discovered. Authors derive the
conclusion that Ukraine has to move from infl ation targeting regime to nominal GDP targeting;
the latter would combine policy objective of real GDP growth with infl ation dynamics. The
necessity of reorientation of the NBU monetary policy towards supporting the real economy
and extension the monetary policy toolkit in the course of economic crisis is proved: (i) longterm refi nancing of banks at preferential rates with a targeted focus on lending to the real sector; (ii) conducting open market operations with government securities with a focus on budget
support and preventing the collapse of the fi nancial market; (iii) easing regulatory requirements
related to the credit risks assessments by banks on their active transactions with a purpose of
stimulating bank lending activity