yakiv smolii : national bank of ukraine press briefing - monetary policy statement speech by mr yakiv smolii, governor of the national bank of ukraine, at a press briefing on monetary policy, kyiv, 23 april 2020. * * * dear colleagues, please be informed that the board of the national bank of ukraine has decided to cut the key policy rate to 8 % per annum. the continued monetary easing aims to support the economy during the period of pandemic and quarantine. what inflation developments followed the last monetary policy meeting? in march – april, inflation remained even lower than the nbu had expected, despite the temporary price growth in the first weeks of the quarantine. last month, inflation declined to 2. 3 %. price growth was restrained by three major factors. first, lower global energy prices. second, residual effects of last year ’ s appreciation of the hryvnia. third, a larger supply of raw foods. these factors outweighed the effect from the weakening of the domestic currency in march and the panic buying of some goods in the first weeks of the quarantine. according to preliminary data from nbu online monitoring, inflation remains low in april, at less than 3 %. high demand for essential goods waned quickly. as a result, prices for most food products and medicines, which had grown in the first weeks of the quarantine, have declined in recent weeks. the foreign exchange market also calmed. in march, with foreign currency supply on the interbank market remaining almost unchanged, a spike in demand put a depreciation pressure on the hryvnia. however, in april not only did demand drop below the level of supply, but also the net supply of foreign currency is now even higher than it was in february, before the epidemic and quarantine began in ukraine. therefore, the hryvnia strengthened somewhat this month, and the nbu can cautiously resume purchases of excess foreign currency from the market in order to replenish the international reserves. how will inflation behave in the future? in 2020, inflation will remain within the target range of 5 % + / - 1 pp. price growth will accelerate moderately in the coming months, to reach 6 % at the end of 2020. fiscal and monetary policy measures that are aimed to support businesses and households will partially offset the decline in consumer demand. however, consumer demand will remain subdued for long after the quarantine ends. this will keep

ukrainians spending less on foreign travel. the current account deficit will widen again once economic activity rebounds globally and in ukraine. there are also several reasons for this. next year, ukraine is expected to see a drop in gas transit revenues, as well as pent - up demand for consumer goods from households and for investment imports from businesses. despite that, the current account deficit will remain acceptable, at 3 % to 4 % of gdp, as envisaged in the nbu ’ s january forecast. what does the realization of this forecast depend on? continued cooperation with the imf remains the key assumption of this macroeconomic forecast. ukraine is close to having a new aid program approved by the imf executive board. the nbu ’ s revised forecast envisages that ukraine will receive the first tranche of about usd 2 billion in q2. first, this will cover the state budget deficit, which has increased to 7. 5 % of gdp. this will enable ukraine to confidently pass through the period of peaking debt repayments, and finance measures to support businesses and households at a time when business activity is slowing down, employment and tax revenues are falling, and foreign investors are leaving 2 / 4 bis central bankers'speeches emerging markets. second, financing from the imf and other official international partners will help maintain ukraine ’ s international reserves at usd 27 to 29 billion this year and in the coming years. in this light, signing a new aid program with the imf is the main prerequisite for maintaining macro - financial stability in ukraine during the global crisis. therefore, the absence of a program with the imf remains the main risk to this forecast. another important risk to the outlined macroeconomic forecast could arise from a longerlasting novel coronavirus pandemic and, consequently, longer - lasting quarantine measures being required to overcome the outbreak. this will have a direct influence on how quickly the global and ukrainian economies recover. other risks also remain significant. they include : an escalation of the military conflict in eastern ukraine a drop in the harvest of grain, fruit and vegetable crops in ukraine in the wake of unfavorable weather the higher volatility of global food prices, driven by global climate change and the risk of stronger protectionist measures. why did the nbu decide to cut the key policy rate by 2 pp? like most countries, ukraine has found itself in a situation in which the economy needs significant support because of weaker business activity and falling consumption and employment