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Ukraine Monetary Policy March 2022

Ukraine: NBU postpones further monetary policy decisions and introduces FX restrictions amid Russian invasion

In light of the Russian invasion of Ukraine on 24 February, the National Bank of Ukraine (NBU) decided to postpone its key rate decisions until economic conditions return to normal. In its release, the Bank explained that it “remains committed to pursuing our inflation-targeting regime. However, now that the forced administrative restrictions are in place, market-based monetary instruments such as the key policy rate no longer play a significant role in the operation of the monetary and FX markets”. That said, the Bank clarified that the key policy rate will remain unchanged at 10.00% until conditions allow for the next meeting to take place.

Meanwhile, on 7 March, the hryvnia traded at 30.05 per USD, depreciating 6.05% from the previous month and marking an all-time low. The historic depreciation came on the heels of war breaking out between Russia within the country’s borders. As a result, the Bank fixed the official exchange rate and introduced temporary FX restrictions in order to prioritize a relatively stable financial system and ensure full support to Ukraine’s armed resistance. That said, the NBU guaranteed it would return to a floating rate regime once the economic situation normalizes.

The Bank gave no time frame for future decisions, but stated that when “the economy is back to operating on market-driven principles, the NBU will return to its traditional inflation-targeting mode with a floating exchange rate”.

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