OREANDA-NEWS. May 28, 2012. Having analyzed the behavior of the macroeconomic and monetary variables, the Board of the National Bank of Ukraine acknowledges that a downward trend in CPI inflation has persisted – in April annual CPI inflation decreased to 0.6%, having reached record lows in statistical reviews. The inflation rate recorded in Ukraine is one of the lowest in the world.

Given the favorable inflationary situation, the National Bank of Ukraine has taken a set of measures over the past few months, which were aimed at promoting economic growth through a revival of bank lending. In particular, the National Bank of Ukraine has cut a discount rate and interest rates on refinancing loans, eased terms and conditions for carrying out direct repo transactions and reduced reserve requirements.

However, bank lending remains suppressed – lending to the real sector of the economy grew by 1.4% over the first four months of 2012. Significant external risks and uncertainty over further developments in the markets exerted downward pressure on lending growth.

In view of the above, the Board of the National Bank of Ukraine considers it necessary and expedient to take additional measures aimed at helping banks enhance their performance in the context of unstable foreign economic conditions by reducing gradually the amount of required reserves banks are required to hold on a separate account with the National bank of Ukraine.

With a view to offsetting the risks arising from the creation of excessive liquidity, it is deemed expedient to increase simultaneously the amount of required reserves banks are required to hold on their own correspondent account at the beginning of a business day.

Given the need to encourage banks to increase lending to the real sector of the economy and in order to enhance efficiency of the money market adjustment mechanisms pursuant to item 1.10 of Chapter 1 of Regulation on the Procedure for Forming the Required Reserves by Ukrainian Banks and Foreign Banks’ Branches Operating in Ukraine approved by Resolution of the Board of the National Bank of Ukraine No 91 of 16 March 2006, registered with the Ministry of Justice of Ukraine No 312/12186 of 23 March 2006, the Board of the National Bank of Ukraine approved Resolution “On Certain Issues related to the Money Market Regulation” No 197 of 18 May 2012, which stipulates the following:

1. The following procedure for forming the required reserves by Ukrainian banks shall be established (effective from 31 May 2012):

50 % of the required reserves formed during the preceding provisioning period shall be held on a separate account with the National Bank of Ukraine No 3203 “Funds of required reserves transferred by banks”;

the remaining amount of the required reserves formed pursuant to the ratios established for the corresponding period shall be formed on a correspondent account with the National Bank of Ukraine.

2. The amount of required reserves, which shall be kept daily on the bank correspondent account with the National Bank of Ukraine at the beginning of a business day, shall not be less than 40 % of the amount of the required reserves formed by banks during the preceding provisioning period.

3. The following shall be deemed invalid:

Sub-items 2.1 and 2.3 of Item 2 of Resolution of the Board of the National Bank of Ukraine No 102 of 21 March 2012 “On the Money Market Regulation”.