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, 4 march 2021. * * * dear colleagues, i would like to inform you that the board of the national bank of ukraine has decided to raise its key policy rate to 6, 5 % per annum. the decision is aimed at gradually reducing inflation to the target of 5 %, as the ukrainian and global economies are recovering. how did prices change at the start of 2021? as expected, inflation accelerated in january, and deviated from the 5±1 pp target range. inflation continued to accelerate in february according to preliminary estimates. in particular, consumer inflation exceeded the nbu ’ s forecast, while inflation expectations remained high. at the same time, the underlying inflationary pressure was generally in line with the central bank ’ s forecast trajectory in january – february. the growth in inflation in the first months of 2021 was driven by a number of factors. among them were : higher food and fuel prices stronger inflationary pressures from trading partner countries sustained domestic consumer demand. moreover, prices continue to be influenced by the effects of last year ’ s hryvnia depreciation. how will inflation behave in the future? the growth in consumer prices will peak in mid - 2021. however, inflation will start to decelerate afterwards, returning to its target range in h1 2022. the global and ukrainian economies, which are recovering rather quickly, will produce significant inflationary pressures throughout the whole of 2021. at the same time, the inflation trend will be reversed gradually as new harvest supplies come to the market, the effect of a low comparison base wanes for some products, and the nbu raises its key policy rate. inflation will thus decelerate at the end of the year and will settle within the 5 % ± 1 pp target range in h1 2022. what other factors were taken into account in the decision on the key policy rate? the primary assumption of the nbu board is that ukraine will continue to cooperate with the imf. the nbu expects further progress to be made in negotiations between ukraine and the imf. cooperation with the fund and other international partners is essential for financing budget requirements and providing the economy with an additional impetus for growth. this will enable ukraine to maintain its international reserves at about usd 30 billion. as before, the imposition of

s growth potential and provide a boost to international demand at the same time – thus killing two birds with one stone? in the next 15 minutes, i will briefly sketch out some possible answers to these questions. 2. wages and inflation in germany despite the very favourable economic situation in germany, inflation has not quite kept pace with the expansion. and while i am pretty sure that arthur okun, inventor of the misery index, would marvel at this remarkable combination of low inflation and low unemployment, this is nonetheless something of an economic conundrum. standard economic theory would suggest strong wage growth in the face of increasing labour 1 / 5 bis central bankers'speeches market tightness. and in time, higher wages would translate into higher inflation as well. but wages have been growing at a moderate pace even in the presence of a positive output gap. notwithstanding that wage growth is now slightly above the long - term average, indicators of labour market slack would suggest higher wage settlements. what can explain the modest wage growth in germany? bundesbank research suggests that migration from other eu member states partially accounts for dampened wage pressures in germany. trade unions ’ higher weight on requests for reduced working time or more training probably also plays a part. i ’ m sure the upcoming discussion will delve deeper into this as well. but when it comes to modest wage growth in the face of tight labour market conditions, germany is by no means unique. it seems to be a rather widespread phenomenon, characteristic of the current situation in the us, the uk, japan and sweden, for example. this suggests that the factors responsible for holding back wage growth are not only idiosyncratic, but at least partly international as well. recent research by the bank for international settlements, for example, suggests that the greater contestability of labour markets via the proliferation of global value chains puts a lid on wages. 1 more research is needed here, however, to determine which factors are the most prevalent, and whether they are temporary or secular in nature. 3. fiscal policy what can be said with confidence in my view, however, is that a positive output gap does not signal a need for an expansive fiscal policy stance. rather, to heed kennedy ’ s advice would be to maintain a safety margin to the existing fiscal rules in the face of the looming demographic challenges. yet this does not mean that there is no need for action on fiscal policy. action is warranted to counteract the demographic drag on growth – but action not with regard to