Ukraine

Years

Targets and attainment

Classification

1992-96

independence (exit from USSR) late 1991 but continued membership of rouble area; central bank and initially four specialised state banks created in 1990-1, but many small commercial banks also being set up; single-use coupons (valid and required only in state stores), issued in 1991, in 1992 become multiple-use and function as surrogate currency (amid shortage of roubles and collapse of rouble payments system throughout former USSR); inflation spike from price liberalisation early 1992; build-up of large inter-enterprise and inter-state  arrears, to which Russian central bank reacts harshly; late 1992 coupons become Ukrainian currency ‘karbovanets’, with exit from rouble area in context of multiple and falling exchange rates; large budget deficits and SOE credit demands financed entirely by bank credit; sporadic attempts to tighten monetary policy via cuts in refinancing, rises in reserve requirements and credit controls, but repeatedly reversed; 1992-3 very high inflation leads to rising dollarisation and demonetisation; 1994 improvements in payments system and foreign payments arrangements; exchange rates briefly unified mid-1993 before reversion to multiple rates and renewed restrictions; 1994 new law on separation of powers allows start of stabilisation and reform programme, including liberalisation of prices and of forex market (exchange rates re-unified, with some intervention) and credit contraction, but political tensions continue to obstruct economic reforms; 1995 first issues of treasury bills; mid-1996 new constitution

unstructured discretion UD

1997-99

late 1996 new permanent currency ‘hryvnia’ (= 100,000 karbovanets), exchange rate managed within informal and frequently adjusted band vs USD; August 1998 significant fallout including sharp depreciation from Russian financial crisis, but comparable crisis in Ukraine averted; early 1999 central bank issues own CDs

loosely structured discretion LSD

2000-13

2000 policy reverts to stabilising exchange rate de facto (at depreciated level), with official rate fixed daily by central bank and intervention to ensure interbank rate remains within narrow band around official; monetary policy is subordinate to peg and focused on base money, in context of remonetisation base money targets are often missed; some ongoing structural reforms, but delays to planned privatisations; as of 2003 monetary policy aims at price stability via exchange rate stability, but primary and secondary government securities markets are weak, there is no benchmark interest rate, forex interventions and reserve requirements are key policy instruments, and monetary transmission mechanism is not clear; 2004 acute political tensions but financial crisis averted; authorities resist IMF pressure for exchange rate flexibility 2004, but allow small appreciation 2005; 2005-08 authorities argue for gradualism on exchange rate flexibility and over eventual move to inflation targeting; deep adverse effect from GFC; exchange rate band widened early 2008, large depreciation with banking as well as currency crisis 2008-9; exchange rate stabilised from 2010 at new level; 2011 official rate set more closely in line with interbank rate, both heavily managed; authorities slow to phase out 2009 banking crisis measures and resistant to IMF pressure for exchange rate flexibility 2012-13 (and market expectations of devaluation late 2012), but current policy mix arguably involves exchange rate overvaluation plus large fiscal deficits (and quasi-fiscal losses) and is unsustainable, while monetary operations need range of reforms; rising political tensions late 2013 as president puts association agreement with EU on hold

loose exchange rate targeting LERT

2014-23

early 2014 president removed from office, Russia annexes Crimea and sponsors secessionist movements in eastern Ukraine, triggering economic crisis with float (large depreciation) of exchange rate and deep recession, and increased central bank financing of budget; mid-2014 new programme involves shift to money-based operations as prelude to adoption of inflation targeting, plus insolvent bank resolution and reform; exchange rate mostly allowed to float, with further sharp but temporary depreciation and inflation spike 2015; late 2014 EU association agreement ratified, early 2015 Minsk Protocol; situation in eastern Ukraine remains unresolved with recurrent outbreaks of fighting; dispute with Russia over gas imports and tariffs; changes over several years to processes, communications and operational framework of monetary policy (including policy rate and corridor) lead to formal adoption end-2016 of (converging) inflation targeting; high (informal) target for 2016 attained, lower (formal) targets for 2017 and 2018 overshot (with expectations well above band), lower target for 2019 attained at end but not on average, 2020 target well overshot (with expectations above band), targets for 2021-22 well overshot, target for 2023 attained at end but well overshot on average (with expectations from early 2022 well above band); strong response to Covid-19, milder recession 2020 than expected, recovery 2021; February 2022 Russian invasion, economic consequences likely dire, emergency policy measures include fixing of exchange rate, with devaluation July 2022, hike of policy rate plus suspension of policy rate adjustments, short-lived provision of liquidity facilities, and central bank financing of expanded fiscal deficits; 2022 continuing deep and wide impact of war, exchange rate remains fixed, adjustments to monetary operations; mid-2023 central bank strategy for easing interest rates and forex restrictions with view to return to inflation targeting, October 2023 move from corridor to floor-based framework, exchange rate now managed instead of fixed; statistics more or less adequate, room for improvement

loosely structured discretion LSD