key risk to inflation dynamics and economic development the war continues. accordingly, the risks of a further decline in economic potential remain, in particular due to the loss of people, territories, and production facilities. the speed of the economy's return to normal will depend on the nature and duration of the war. 2 / 4 bis - central bankers'speeches what is more, it continues to generate the following risks : the emergence of additional budget needs, mainly those to maintain defense capabilities the likelihood of an additional hike in taxes, which – depending on its parameters – may drive up pressures on prices further damage to infrastructure, especially energy and port infrastructure, which will restrain economic activity and put supply - side pressures on prices a deepening of adverse migration trends and a further widening of labor shortages on the domestic labor market. there is also a risk of increased geopolitical tensions in the world amid the war in the middle east, the electoral cycles in some countries, and russia's attempts to form a coalition of states. at the same time, a number of positive scenarios are still likely to materialize, resulting from further acceleration of european integration processes and recovery in the energy sector. in order to maintain the sustainability of the fx market, bring inflation back to its target over the coming years, and keep inflation expectations in check, the nbu board decided to keep the key policy rate at 13 % per annum given that inflation has not yet peaked, and that pro - inflationary risks have even increased for the coming months, the nbu believes it appropriate to remain cautious while conducting its interest rate policy, and to take prudent measures to safeguard the sustainability of the fx market. to counteract price pressures, the nbu suspended its interest rate policy easing cycle in july. this has supported interest in hryvnia savings, the interest rates of which currently provide adequate protection against inflationary depreciation. in particular, the inflow of households'hryvnia term deposits resumed in the fall, and investments in domestic government debt securities continued to grow. the policy of protecting hryvnia savings from being eroded away by inflation will continue to help limit pressures on the fx market and preserve international reserves. using the regime of the managed flexibility of the exchange rate, the nbu will compensate for the structural shortage of foreign currency in the private sector and smooth out excessive exchange rate fluctuations. the exchange rate will fluctuate moderately in both directions in response to changing market conditions, which will further strengthen the

risks arising out of unhedged foreign currency exposure of the corporates and price them in the credit risk premium while extending fund based and non - fund based credit facilities to them. banks have also been advised to consider stipulating a limit on unhedged position of corporates on the basis of policy approved by the board of the banks. the above measures need to be strengthened by requiring the corporates to put in place a risk management policy for their unhedged forex exposures. we have observed that despite our repeated efforts to sensitize both banks and corporates on the matter, adequate measures have not been put in place. it was therefore decided to increase the risk weights and provisioning requirements on banks ’ exposures to corporates on account of the corporates ’ unhedged forex exposure positions. 24. another related issue that banks and corporates have discussed with us is the nonavailability of long - term hedging products to the corporates. while otc forward market is liquid enough up to one year, the exchange traded market, which i would come back to, is liquid only in the near month segment. if the interest rate parity holds good, forward rate should reflect the interest rate differentials. otherwise, it becomes more a function of demand and supply. while there has been no regulatory restriction on booking of long - term forwards beyond one year, market participants generally prefer booking short - term contracts ( maximum tenor up to one year ) and then roll it over till the maturity of the exposure. this strategy partially addresses their long term risk, substituting the exchange rate risk with the less volatile forward premium. inter - bank market also uses mifor curve which is the implied rupee curve for pricing long - term forwards. a long - term forward contract requires taking a view of long - term interest rates in both domestic currency as well as foreign currency. while in case of us dollar, the inter - bank term rates are available through active swap market, the term money or the term swap market for tenor beyond one year is not liquid enough in india, thus, making it difficult for the market to price the forwards beyond one year. the interest rate swap market, which is quite active up to five year, is predominantly an overnight indexed swap market with floating leg linked to the overnight uncollateralised inter - bank call rates rather than inter - bank term rates. how can this problem be addressed? an important prerequisite would perhaps be a