OREANDA-NEWS. August 30, 2012. Mr. Sergiy Arbuzov, Governor of the National Bank of Ukraine, held a regular meeting on monetary issues, which was attended by Mr. Ihor Sorkin and Ms. Vira Rychakivska, Deputy Governors of the National Bank of Ukraine, and heads of the structural units whose functions include the formulation and implementation of monetary policy.

During the course of the meeting, the meeting participants have pointed out that uncertainty in global markets weighs on Ukraine’s economic growth. In spite of this, Ukraine’s economy continues to expand – real GDP grew by 3.0% in the second quarter of 2012, compared with the corresponding period of 2011. Over the same period, GDP in the euro area and the UK contracted by 0.4% and 0.8% respectively.

The figures for CPI inflation (-0.1% since the start of the year and in annualized terms) are close to optimal, taking into account the seasonal factor and the dynamics of core inflation (3.1%), which testifies to the proper execution of the main constitutional function by the National Bank of Ukraine.

The meeting participants have not ruled out the possibility that there might be some increase in the inflation rate in the coming months, which can be attributed to the seasonal factors and possible price rises in the global commodity markets. The low comparison base of the previous year will have an impact on annual CPI inflation. However, an increase in inflation driven by the above-mentioned factors is expected to be moderate.

The meeting participants focused their attention on the developments in the money market during the past two months, including a rise in interest rates seen in the interbank credit market. The Governor of the National Bank of Ukraine has emphasized that an increase in interest rates was not driven by shifts in the monetary policy stance. On the contrary, in the context of the slowdown in the rate of CPI inflation, the National Bank of Ukraine has taken measures in the current year to boost economic growth, by creating conditions for a reduction in the value of funds.

In June-July, a rise in interest rates was triggered by negative external shocks, hitting the Ukrainian economy. In particular, the depreciation of the euro against the US dollar in the global markets pushed up the demand for foreign exchange in the domestic market, which is traditionally dominated by the US dollar. The outflow of hryvnia from the interbank market to the foreign exchange market is accompanied by a decline in the supply of domestic currency in the interbank market, which cannot but affect the interest rates.

In view of the above and in order to stabilize market expectations, the National Bank of Ukraine has resumed interventions on foreign currency sales since May 2012. With a view to counteracting an upward trend in interest rates seen in the interbank credit market, in June-July period the National Bank of Ukraine enhanced the provision of liquidity to banks.

At the same time, Mr. Sergiy Arbuzov has reminded that pursuant to the Law of Ukraine “On the National Bank of Ukraine” the National Bank of Ukraine acts as a lender of last resort to banks when they cannot borrow from anywhere else. It is well-known that the bank liquidity comprises national currency funds and foreign currency ones. The banks have sufficient foreign currency funds to maintain their hryvnia liquidity by converting foreign currency funds into national currency funds if required. If an increase in banks' lending activity calls for the provision of liquidity to banks, the National Bank of Ukraine will consider the possibility of enhancing the provision of liquidity.

The meeting participants have expressed their appreciations for the measures already implemented, pointing out that the monetary instrument and mechanism parameters at hand are broadly in line with the current macroeconomic and monetary conditions and require no alterations to be made.