PROBLEMS OF IMPLEMENTING THE INFLATION TARGETING REGIME IN UKRAINE

Abstract

The article is devoted to the study of the process of implementing the inflation targeting (IT) regime in Ukraine from the point of view of its compliance with the legislation and consistency with the main function of the National Bank of Ukraine (NBU). During the study, the characteristic features and controversial points of the NBU’s application of the IT regime were identified, changes to the legislation and individual regulatory legal acts were analyzed, which concerned the transformation of the NBU’s organizational structure and the operational design of monetary policy. The transition of the NBU to the implementation of monetary policy in the IT regime took place during 2014–2016 in the context of the financial and economic crisis, and certain decisions of the NBU Board of that period, adopted based on proposals of the newly established Monetary Policy Committee, increased devaluation and inflationary trends. A characteristic feature of the process of implementing the IT regime was the significant limitation of the NBU Council's powers, resulting in a deterioration in the accountability of monetary policy to society. The NBU applies a strict version of the IT regime, based on the so-called “expensive money” policy, which led to the demonetization of the economy, the curtailment of credit activity, and the separation of the banking system from the real economy. It is concluded that maintaining high rates is unable to ensure price stability, but rather limits the prospects for economic development and harms the public finance system. To ensure the stability of the hryvnia, the NBU's monetary policy should be integrated into the national anti-inflationary policy, developed with the involvement of all interested authorities.