misalignments in real time are enormous. central banks need to be very cautious in forming their assessments and keep the caveats underlying their analyses always in mind. and the challenges faced by central banks in the face of sustained market movements are not exhausted by the identification problem that i just described. even in the rare cases in which the central bank can confidently claim to be facing an unusual and possibly destabilising asset price movement, the design of its reaction is all but automatic. it is often argued that a central bank in such circumstances should carefully tighten its monetary policy at an early stage in order to suppress the bubble process before it escalates to disproportionate dimensions. if a bubble exists, a somewhat tighter policy along the build - up phase - so the argument goes - may help to avoid that even larger imbalances may develop down the road. however, a bold opposite view has also found some supporters among economists. this alternative policy option would tend to suggest that, due to the rather long lags in the operation of monetary policy impulses, the central bank should consider loosening - rather than tightening - its policy in anticipation of the bubble collapse. this would cushion the negative effects of the expected economic downturn in a forward - looking manner. there is a very strong argument against this policy option because, when a bubble process emerges, it is then almost impossible for the central bank to predict the timing of the turnaround in asset prices. and if the central bank cannot be sure that the bubble will burst of its own accord, a loosening of policy will further strengthen the bubble process. but the dilemma - where not only the measure of misalignments, but also the sign of the monetary policy response to it is somewhat controversial - exemplifies the amplitude of the policy dilemma. if and when the bubble bursts, there is a dimension of strategic interaction that a prudent policymaker cannot ignore. this offers a rather strong argument in favour of symmetry in the central bank ’ s behaviour in boom and bust periods. if a central bank were to react in an asymmetric manner, namely only with looser policy at times of asset price busts but not with tighter policy when asset price bubbles emerge, the central bank may create through its own behaviour a moral hazard problem among market participants. it is crucial for a central bank to avoid this, since a perception that it insures investors against the risk of large losses could easily contribute to the formation of

kyrylo shevchenko : national bank of ukraine press briefing monetary policy statement speech by mr kyrylo shevchenko, governor of the national bank of ukraine, at a press briefing on monetary policy, kyiv, 9 december 2021. * * * dear colleagues, please be informed that the nbu board has decided to raise the key policy rate to 9 % per annum. the decision is aimed at neutralizing the impact of additional pro - inflationary risks, improving inflation expectations, and ensuring steady disinflation toward the nbu ’ s target of 5 %. what price dynamics followed the previous nbu board meeting on monetary policy issues? the growth in consumer prices decelerated to 10. 9 % yoy in october. the nbu estimates inflation continued to decline in november. the decline was driven by : the vanished effect of the last year ’ s low comparison base better harvests gathered this year administrative decisions on public utility rates the strengthening of the hryvnia in previous months the impact of the nbu ’ s previous decisions to tighten its monetary policy. at the same time, disinflation was somewhat slower than the nbu had predicted in itsoctober forecast. the decline in inflation was restrained by : higher pressures on prices of an increasingly wider list of consumer - basket goods and services due to the rise in food and energy prices businesses ’ higher expenses on logistics and wages domestic consumer demand remaining robust despite a slight deterioration in consumer confidence and the quarantine restrictions. additional pro - inflationary risks have also materialized. first, rising geopolitical tensions are affecting prices of ukrainian assets and fx market conditions. second, global prices for natural gas and food exceed the nbu ’ s expectations and are likely to remain high in the coming months. third, higher global inflation is prompting leading central banks to step up their monetary policy tightening. in turn, this lowers investor interest in assets of emerging markets ( including ukraine ). moreover, emerging market central banks are also actively raising their rates. for example, yesterday the central bank of brazil hiked its rate by 150 bp, to 9. 25 % per annum. this means the competition for foreign capital is getting stronger among emerging markets. how will prices change further on? inflation will continue to decline gradually until the end of this year and throughout the whole of 2022. 1 / 2 bis central bankers'speeches this year ’ s record - high harvest and a correction in global prices will help decelerate food price inflation