How the National Bank of Ukraine Can Facilitate Economic Recovery: Key Strategies and Expert Recommendations
In the face of contemporary economic challenges, the National Bank of Ukraine needs to reorient its monetary policy to foster more favorable conditions for restoring the country’s devastated economy.
Experts highlight that easing monetary policy alone will have limited impact, given the high level of import dependence in Ukraine’s internal market.
According to Tatiana Bogdan, PhD in Economics and Director of Scientific Research at Growford Institute, structural issues hinder the effective use of monetary policy tools.
For example, the volume of fixed-term hryvnia deposits by residents in banks is less than 5% of GDP, and the average interest rate on deposits is around 10%, while banks receive up to 19% from the NBU on three-month certificates.
To stimulate growth and accelerate recovery, it is essential to fundamentally change approaches: reduce the rigidity of monetary policy, restore balance in interest rates; abandon the practice of issuing three-month certificates by the NBU; and activate credit stimulation measures by easing financial regulatory requirements.
A critical step would be to lower interest rates on new government bond placements (OVDPs) to levels close to the projected inflation rates for the upcoming year.
Such measures would boost private consumption and investments, leading to increased aggregate demand and a more active revival of the industrial sector.
Simultaneously, lower interest rates would reduce the cost of servicing the national debt, decreasing the likelihood of a future debt crisis.
More insights from the expert can be found in her published articles via the provided links.