system links domestic and foreign financial markets. it is the lifeline of any currency. if that lifeline is cut, the consequences are catastrophic. in simple terms, this is what happened when the icelandic banking system collapsed. there was a real danger that a vicious circle, as capital fled isk - denominated assets, could have amplified major difficulties faced by highly indebted households and businesses. when an entire country ’ s financial system collapses, as was the case here, it can take a long time to make it fully operational once more. as a result, it could take some time, given the global financial crisis, for foreign credit markets to re - open, as turned out to be the case. in view of the fact that considerable refinancing of treasury debt was scheduled for 2011 and 2012, there was clearly limited scope to use the central bank ’ s foreign reserves to mitigate exchange rate fluctuations without risking the treasury ’ s ability to refinance or pay off the loans maturing in these years. for whatever reason, when it came down to it, the imf was not prepared to extend loans to facilitate in the reconstruction of the icelandic economy unless it could be guaranteed that funds provided would not be sucked down a whirlpool of capital fleeing the country. the capital controls provided the authorities with leeway to restructure the financial system, get a grip on treasury finances, and deal with the problems of debt - ridden households and businesses. all of this is a prerequisite for regaining the trust of international credit markets in the icelandic economy and in the ability of the treasury to meet its obligations. since the controls were tightened, they have contributed to greater exchange rate stability than has been seen for a long time, albeit at a lower level than is desirable. this stability has facilitated implementing economic policy. it therefore comes as no surprise to hear the view expressed that the capital controls should be maintained on a more permanent basis. this is not as attractive an option as might appear at first glance, however. in the first place, liquid capital cannot be kept here forcibly for an indefinite period of time. the controls are a violation of various international agreements signed by iceland. they are tolerated as long as iceland follows the economic recovery programme supported by the imf, and thus indirectly by the member states of the eea, oecd, and the fund itself. soon after this programme concludes, the controls will likely have to disappear ; i. e., if the

##political tensions could have a very negative impact on the expectations of households, businesses and investors, while also significantly hampering investment in the economy and making it difficult to raise external financing. if geopolitical risks increase further, the nbu will stand ready to tighten its monetary policy. the ongoing global spike in inflation, due to, among other things, persistently high energy and food prices, remains an important risk. looking ahead, global price movements will strongly depend on how quickly leading central banks respond to inflation challenges. any delays will push up external price pressures. conversely, a rapid tightening of monetary policies by leading central banks poses the risk of there being more substantial capital outflows from emerging markets. the baseline scenario of the nbu ’ s forecast assumes that the impact of the pandemic on the ukrainian economy will continue to decrease. that said, the emergence of new coronavirus variants, coupled with the still low vaccination rollout in ukraine, poses the risk of additional economic losses in 2022. new pandemic outbreaks are unlikely to hit consumer demand hard, 2 / 3 bis central bankers'speeches but will stifle business activity. this could increase inflationary pressures. other pro - inflationary risks are also important. these include : a marked deterioration in terms of trade or a sharp decline in harvests after last year ’ s bumper ones a revival in labor migration, on the back of the gradually waning pandemic, which could increase the mismatches on the domestic labor market and push up wage costs and the need to bring utility prices to economically sound levels. what will the nbu ’ s monetary policy stance be in future? under the baseline scenario of the macroeconomic forecast, the monetary policy stance will remain moderately tight over the entire forecast horizon. the key policy rate will be at least at its neutral level in 2022 and in the coming years. in addition, to shore up the interest rate channel of monetary transmission by managing the structural surplus of liquidity in the banking system, the nbu in february will raise by 2 pp the required reserve ratio for current accounts denominated in hryvnias and current accounts and term deposits in foreign currency. in march, the central bank will also consider the issue of introducing other measures to regulate the banking system ’ s structural liquidity surplus. the nbu will continue to intervene in the fx market to smooth out excessive market fluctuations. at the same time, the nbu decided not to carry