Financial Stability Counil Recommends that the NBU Ease FX Restrictions
A special meeting of the Financial Stability Council of Ukraine, chaired by NBU Governor Ms Valeria Gontareva, was held on 2 March 2016.
The Council members pointed out that macroeconomic stabilization is taking hold in Ukraine and the economy shows signs of recovery, albeit slow and fragile; headline inflation has been on a firm downward path. In January 2016, the state budget showed a surplus. Also, there are signs suggesting the gradual recovery of households’ confidence in the banking sector, which is evidenced by the increase in household deposits in domestic currency.
The Council members underlined the importance of proceeding with measures to gradually ease FX regulations in an effort to improve investment climate, contribute to the efficient implementation of privatization programs and encourage capital inflows to Ukraine’s economy. The meeting participants also explored the possibility to revise some administrative restrictions in the cash FX market, which will contribute to the efforts to bring the market out of shadow. Some restrictions have become inefficient and fuel negative market expectations instead of contributing to efforts to stabilize the FX market,” said Ms Gontareva.
In view of the above, the Financial Stability Council recommended that the NBU explore the possibility to phase out FX restrictions in a gradual manner.
At the same time, the Council members pointed out that external economic factors pose key challenges to the recovery of the Ukrainian economy and financial stability. The main downside risks include low prices and weak demand for key Ukrainian export commodities.
The Council members also pointed to the growing risks stemming from domestic political turbulence, saying that it puts cooperation with the IMF and other external partners on hold, slows the pace of reforms, fuels pessimistic sentiment among businesses and households, and triggers exchange rate volatility. “It is critically important for Ukraine to bring the IMF program back on track to ensure the economic and financial stability at this juncture,” said Deputy Finance Minister, Mr Shevaliov in this regard. Such risks to the financial stability and emerging signs of financial instability call for the need to keep in place some FX restrictions imposed by the NBU.
The Council members expressed concerns over such downside risks and called on all stakeholders to take urgent measures to restore political stability in the country and resume cooperation with international donors.
Key facts about the Council
The Fnancial Stability Council was established by the Presidential Decree in March 2015. The Council comprises the Governor of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairs of the Council), Head of the National Securities and Stock Market Commission, Head of the National Financial Services Commission, Managing Director of the Deposit Guarantee Fund, First Deputy Governor of the National Bank of Ukraine, and Deputy Minister of Finance of Ukraine. The Council c provides a forum for professional discussion of risks posing a threat to the country’s financial stability. The Council has held two meetings in 2016. The next meeting has been scheduled for April 2016.