The National Bank of Ukraine (NBU) on April 1 transferred all the planned UAH 42.7 billion in profit for 2019 to the national budget, according to the regulator’s Facebook page.
“This year, in agreement with the Ministry of Finance, it was decided to transfer the entire amount of the National Bank’s profit to the state budget,” the report says.
It is clarified that in this way the regulator helps the government in overcoming the epidemic in the country.
As reported, state budget revenues in March 2020 amounted to UAH 87.8 billion, which is 10.4% less than the plan and 2.6% more than in March 2019. In addition, the general fund of the state budget received UAH 78.4 billion, which is 10.3% less than the planned figure.
Ukraine has all chances to sign a new financial agreement with the International Monetary Fund (IMF), but it is the Verkhovna Rada is to do the final step, First Deputy Governor of the National Bank of Ukraine (NBU) Kateryna Rozhkova has said.
“Ukraine as a state today continues negotiating on attracting IMF assistance… The chances are great, but the last step is ours, in fact, it is the Verkhovna Rada, which must adopt two bills, which are the so-called prior actions. This is the land bill and the bill about banks,” Rozhkova said during a press briefing on Friday.
She also said that the IMF is ready to increase the scope of the Extended Fund Facility (EFF) compared with the previously agreed $5.5 billion.
“We are optimists. If the EFF is approved, Ukraine will be able to go through difficult times to combat the virus,” Deputy Governor of the central bank Oleh Churiy said.
The National Bank of Ukraine (NBU) in addition to conventional short-term tools of refinancing of banks is introducing long-term refinancing for the period of up to five years, the NBU said on Wednesday. “This step is aimed at meeting several goals at once, related both to maintaining financial stability in the country and stimulating economic growth,” the regulator said.
According to its calculations, the long-term refinancing mechanism will support hryvnia bank lending, enhancing the effect of other measures taken by the National Bank over the past months: lowering the refinancing rate and introducing incentive reserve standards.
“Secondly, the new instrument will serve as an additional guarantee of maintaining sufficient liquidity in the banking system. This, in particular, is also important for the smooth conduct of client operations in the face of deteriorating market sentiment due to the spread of the coronavirus disease COVID-19,” the NBU said.
According to the report, the frequency of tenders to maintain bank liquidity, volumes, terms and other parameters of long-term refinancing will be determined by individual decisions of the Board of the National Bank after consideration of these issues by its Monetary Policy Committee.
The interest rate on long-term refinancing loans will be floating as the NBU refinancing rate, which can be changed in accordance with the decisions of the board, along with a constant value in percentage points, which is valid on the day the loan is issued and will remain unchanged for the entire period of use.
If necessary, banks will be able to repay such loans ahead of schedule at any time.
In order to reduce risks in the provision of refinancing loans, the NBU also improved the standards for collateral instruments, the central bank said. In particular, it is possible to directly transfer the bank’s funds from the repayment of the National Bank’s deposit certificates and income on them to partial early repayment of debt, if the certificates are included in the collateral pool. It is also determined that a foreign currency in such a pool should be placed by the bank on NBU accounts as a cash cover without paying interest on it.
“Thus, favorable conditions are created for the development of long-term lending to entrepreneurs and the population, in particular mortgages, loans for business development and others. At the same time, banks will be able to apply for long-term refinancing in situations where they will need additional liquidity,” the regulator said.
At the same time, the NBU said that today, the hryvnia liquidity of the banking system exceeds UAH 200 billion, the currency liquidity is $8 billion, so the introduction of a new tool is more likely to be preventive in the event of a more serious crisis in the global economy.
The central bank said the introduction of a long-term refinancing mechanism was approved by the NBU Board decision No. 29 issued on March 17 amending the regulation on the interest policy of the NBU and decision No. 30 approving changes to the regulation on the application of standard instruments for regulation of the liquidity of the banking system by the NBU. These changes entered into force on March 19, 2020.
The refinancing rate could be reduced to 8% per annum faster than the central bank previously forecasted if a favorable macroeconomic situation is retained, Governor of the National Bank of Ukraine (NBU) Yakiv Smolii has stated. “This year, if the macroeconomic situation does not change dramatically, the refinancing rate could be 8%. We previously planned to lower it to such a level in 2021. But now we see prerequisites for the more rapid easing of monetary policy,” Smolii said in an interview on YouTube channel KRYM.
According to him, this year businesses could expect loan rates at the level of 10-12% per annum in hryvnias.
As reported, from December 13, 2019 the NBU lowered the refinancing rate to 13.5% per annum from 15.5% per annum.
The National Bank of Ukraine (NBU) has decided from December 13, 2019 to cut its refinancing rate to the level, at which it was two years ago – 13.5% per annum from 15.5% per annum, which was set from October 25, 2019. “The NBU speeds up the monetary policy easing, as the rapid appreciation of the hryvnia makes inflationary pressures decline faster than expected,” the central bank said on Thursday.
The Board of the National Bank said that the stronger hryvnia made inflation decline towards the 5% target faster than envisaged in the latest macroeconomic forecast.
The NBU also said that it will revise the inflation forecast taking into account the situation in the foreign exchange market and will publish the updated macroeconomic forecast, including the future inflation path, at the end of January.
The regulator recalled that according to the October forecast, it plans to reduce the refinancing rate to 8%. However, as part of the next review of the macroeconomic forecast, in January it will publish an updated forecast of the pace of the refinancing rate. The forecast will take into account the impact of consumer demand and FX market conditions on future inflation.
In addition, the NBU will continue to monitor what progress is achieved in implementing key domestic reforms. These reforms are those that are envisaged in the memorandum of understanding signed by the Ukrainian government and the NBU, and the judicial reform required to establish the rule of law in Ukraine.
Commenting on the current situation, the regulator said that in November 2019, consumer inflation decreased sharply, reaching 5.1% year-over-year, which was below the NBU’s latest forecast. “In such a way, inflation reached the medium-term target of 5%, set by the NBU in 2015,” the central bank said.
The steady disinflation has been driven by a gradual easing of underlying pressures on prices, reflected in a slowdown of core inflation, and by lower energy prices. Inflation slowed markedly due to both the strengthening of the hryvnia and an improvement in inflation expectations. The above factors neutralized the pressure on prices from robust consumer demand and worse harvest of some vegetables.
The NBU said that the hryvnia strengthened due to several reasons. In October-November, the excess supply of foreign currency was mainly driven by proceeds from Ukrainian exports, in particular thanks to a record harvest of grain and oil crops, and selling foreign currency coming from borrowings of state-owned companies. Foreigners continued to invest in hryvnia government bonds, but it did not have major influence on the foreign exchange market, unlike in the past months. At the same time, the NBU actively purchased excess foreign currency to replenish international reserves. Net foreign exchange interventions have totaled over $5.5 billion since the start of 2019.
“Reaching the staff-level agreement on the new cooperation program with the International Monetary Fund is an important milestone in the progress of structural reforms in Ukraine as well as in maintaining macrofinancial stability and steady economic growth,” the NBU said.
The central bank paid attention other risks that the NBU took into consideration when making its previous monetary policy decision remain in place. In particular, the risk of rising threats to macrofinancial stability persists because of court rulings and pressure on the NBU. If materialized, these risks could worsen exchange rate and inflation expectations, and make it harder for Ukraine to access the international capital markets at a time when debt repayments are peaking.
According to the press service of the NBU, the following external risks remain relevant a complete halt of the transit of Russian gas through Ukraine, intensified trade tensions and more turbulent global financial markets and an escalation of the military conflict and new trade restrictions introduced by Russia.
As reported, the NBU began a cycle of easing monetary policy rates on April 26 this year, lowering the refinancing rate to 17.5% per annum from the level of 18% per annum, at which the central bank kept it from the beginning of September 2018. Then, in the middle of July and early September of the current year, the National Bank lowered the refinancing rate by 0.5 p.p. each time, and at the end of October lowered it by 1 p.p.
A summary of the discussion by Monetary Policy Committee members that preceded this decision will be published on December 23, 2019. The next meeting of the NBU Board on monetary policy issues will be held on January 30, 2020 as scheduled.
The international reserves of Ukraine in November 2019 increased, according to preliminary data, by 2.5%, or $500 million, to $21.932 billion, according to the website of the National Bank of Ukraine (NBU). According to the central bank, the increase in international reserves is due, first of all, to the maintenance of a favorable situation in the country’s foreign exchange market. The National Bank notes that, despite a significant slowdown in the inflow of foreign capital into government bonds compared to the previous months, currency supply in the market remained significantly greater than demand due to substantial sales of foreign currency by exporters, which allowed the NBU to replenish international reserves by $897.8 million (net purchase). In particular, the central bank bought $777.8 million at a single rate and $120 million by choosing the best rate. The NBU did not carry out any interventions on the sale of currency last month.
According to the report, for the indicated period, $644.7 million was allocated for servicing and repaying the state debt in foreign currency. Of this amount, EUR425.5 million was paid on government domestic loan bonds, $9.2 million on eurobonds. In addition, $84.4 million were allocated to fulfill obligations to the International Monetary Fund.
These expenses were partially offset by revenues of $304.9 million from the placement of government domestic loan bonds denominated in foreign currency, the NBU notes.