The National Bank of Ukraine in Time of the War: The Preliminary Assessment of Actions and Effects

Abstract

The article contains results of a study on the monetary policy of the National Bank of Ukraine (NBU) in time of the war. NBU does not have a crucial role in management of the crisis related with the war. But it plays a pivotal role in ensuring the proper operation of the national economy, cares about the price stability and supports the economic policy of the state. The NBU’s role in mitigating the economic crisis in Ukraine stemming from the war and in sustaining the social stability is vitally important. It is stressed that the military action accompanied by the humanitarian crisis made NBU refocus the effort on monetary provision of the economy and sustaining the macroeconomic stability. The Russian invasion of Ukraine opened an historic opportunity for watching the monetary policy pursued by a central bank in the conditions of war. 

Once the large-scale war broke out, the Ukrainian economy (and, hence, the government and NBU) had to encounter vast financial losses. Many citizens fled abroad amid the growing need to purchase imported goods for army supply. This boosted the public expenditures, including hard-currency ones. To keep the reserves, NBU had to impose tough currency restrictions, including ones on the purchase of uncritical imports. To prevent a potential immediate devaluation of hryvna (UAH) at the beginning of the war, NBU fixed UAH rate to foreign currencies on February 24, 2022 and suspended calculations of the reference rate UAH/USD.

It is emphasized that NBU has developed a set of potential measures to strengthen the monetary transmission and optimize the structural surplus of UAH liquidity. Details of these measures’ design are being discussed as part of the current consultations of NBU and the Ministry of Finance of Ukraine with IMF. In the forthcoming period, NBU is expected to focus on implementing an updated structure of regulatory capital, updated approaches to determining the risk weights for selected types of assets, the leverage ratio, the limit of significant risks and the standards for information disclosure.