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The Prospect of Ukraine’s Return to the Inflation Targeting Regime: Determining the Level of Optimal Currency Interventions
Tarasenko A. B.

Tarasenko, Artur B. (2024) “The Prospect of Ukraine’s Return to the Inflation Targeting Regime: Determining the Level of Optimal Currency Interventions.” Business Inform 8:89–98.
https://doi.org/10.32983/2222-4459-2024-8-89-98

Section: Mechanisms of Regulation of the Economy

Article is written in Ukrainian
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UDC 33.338.2

Abstract:
The article contains a comprehensive analysis of the path of Ukraine’s monetary policy, focusing on the potential for returning to the inflation targeting regime in terms of the level of foreign exchange interventions. The purpose of the study is to convey the critical importance of FX interventions in Ukraine’s monetary policy and to determine the required maximum level at which the National Bank of Ukraine (NBU) will be able to return to the inflation targeting regime. The pre-war period, during which the NBU switched to the inflation targeting regime, which replaced the exchange rate targeting regime, is considered. The article discusses the transitional stage, describes in detail the obstacles faced by the NBU in achieving inflation targets. These challenges included internal factors such as structural weaknesses in the economy, external shocks, and the overall impact of economic trends. The transition to the inflation targeting regime was marked by periods of uncertainty that required the NBU to adapt its actions to ensure the efficiency of monetary policy. The implemented reforms helped to reduce inflation and stabilized the economy in general. At that time, the inflation targeting regime proved to be really effective and the one to which the NBU should return in the future. After the start of the full-scale war unleashed by the russian federation, the central bank was forced to return to exchange rate control. This change was driven by the urgent need to maintain economic stability in the face of the daily shocks of war. The article highlights the reasons for the transition to fixing the exchange rate, outlines the consequences for the economic trajectory of Ukraine and indicates the reasons that record the impossibility of implementing this regime in the long term due to the depletion of reserves and the creation of non-market conditions that will not reflect the real economic situation in the country. A key component of the study is the analysis of foreign exchange interventions, which play a crucial role in stabilizing the economy. Studying various indicators and levels of foreign exchange interventions, the article identifies the optimal level of interventions necessary for Ukraine. This analysis is based on central bank statistics and theoretical principles, providing a solid basis for determining the conditions under which Ukraine can successfully return to inflation targeting. The article concludes that a return to inflation targeting is not only desirable, but also vital, provided that the NBU is able to maintain the optimal level of FX interventions identified in the study.

Keywords: inflation targeting, FX interventions, monetary policy, Ukraine.

Tabl.: 3. Bibl.: 35.

Tarasenko Artur B. – Applicant, European University (16-V Akademіka Vernadskoho Blvd., Kyiv, 03115, Ukraine)
Email: [email protected]

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