NATIONAL BANK OF UKRAINE. Challenges for monetary policy and financial stability. Dmytro Sologub Deputy Governor National Bank of Ukraine

Transcription

1 Challenges for monetary policy and financial stability Dmytro Sologub Deputy Governor National Bank of Ukraine OeNB 78 th East Jour Fixe Vienna, 26 February 216

2 Ukraine: Plagued by the textbook triple crisis 3 Run on deposits Credit crunch Hiking NPLs and losses Capital erosion Mounting bank failures Banking crisis Macro crisis Severe growth recession Surging inflation Widening budget deficit 1 Balance of payments crisis 2 Unsustainable CA deficit Continuing capital flight Severe confidence crisis Exchange rate overshooting The situation in Ukraine is not unique: Mexico (1994/95), Argentina (1994/95); Thailand (1997), Indonesia(1997), Malaysia (1997), Philippines (1997); 2 Russia (1998); Turkey (21); Ukraine (29). 2

3 II.26 IV.26 II.27 IV.27 II.28 IV.28 II.29 IV.29 II.21 IV.21 II.211 IV.211 II.212 IV.212 II.213 IV.213 II.214 IV.214 II.215 IV.215 Sluggish economic recovery is underway Real GDP growth and Business Expectations Index GDP, % y-o-y Source: State Statistics Service of Ukraine; NBU BEI, % (RHS) Industrial Output by Regions, 215, % y-o-y Volyn -1.4 Rivne.5 Lviv Kyiv region Poltava Kharkiv Ternopil Khmelnytskyi Cherkasy Luhansk Ivano Zakarpattia Frankivsk Vinnytsia -2.3 Chernivtsi Kirovohrad Dnipropetrovs Donetsk Min quartile -9.3 Median quartile -1.7 Max 9.8 Ukraine Zhytomyr 9.8 Source: State Statistics Service of Ukraine Kyiv -5.5 Chernihiv -8.9 Mykolaiv -8.9 Odesa -4.4 Sumy -1.7 Kherson -2.2 FEZ: Crimea Zaporizhzhia -4.7 The economy is clearly bottoming out, posting positive growth rates (qoq, seasonally adjusted) for two quarters in a row. As a result, real GDP growth for 215 as a whole came slightly better than expected around -1% Consequently, business expectations are steadily improving Regional growth picture remains uneven, as the Eastern regions were hit disproportionately due to the proximity to the conflict zone and strong economic relations with Russia 3

4 1/213 2/213 3/213 4/213 5/213 6/213 7/213 8/213 9/213 1/213 11/213 12/213 1/214 2/214 3/214 4/214 5/214 6/214 7/214 8/214 9/214 1/214 11/214 12/214 1/215 2/215 3/215 4/215 5/215 6/215 7/215 8/215 9/215 1/215 11/215 12/215 1/216 1/13 2/13 3/13 4/13 5/13 6/13 7/13 8/13 9/13 1/13 11/13 12/13 1/14 2/14 3/14 4/14 5/14 6/14 7/14 8/14 9/14 1/14 11/14 12/14 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 1/15 11/15 12/15 1/16 Inflation embarked on the steep downward path Inflation Indicators, % CPI, m-o-m CPI, y-o-y Core CPI, y-o-y 4,3 31, Inflation Expectations for the Next 12 Months, % Banks Corporates Households Financial analysts 22,5 21,5 17,5 13,3 8, Source: State Statistics Service of Ukraine Source: NBU; GfK Ukraine surveys; NBU staff estimates Exchange rate stabilization, weak domestic demand, plunging global commodity prices and prudent monetary and fiscal policies contributed to the strong and persistent disinflation trend, emerged since mid-215 On the other side, public inflation expectations remain elevated, which could be traced back to the persistently high depreciation expectations and adaptive expectations structure (i.e. the general public makes no difference between actual and expected inflation) 4

5 I.13 II.13 III.13 IV.13 I.14 II.14 III.14 IV.14 I.15 II.15 III.15 IV.15 I.13 II.13 III.13 IV.13 I.14 II.14 III.14 IV.14 I.15 II.15 III.15 IV.15 External balance improved amid a sharp drop in imports and strong official financing inflows Current Account Balance, USD bn Financial Account: Net External Assets, USD bn , Secondary income Primary income Services (net) Merchandise trade (net) Current account balance Private sector Public sector Financial account -,7 Source: NBU Source: NBU In 215, exports fell dramatically amid continued falling prices on world commodity markets and tensions with Russia Imports declined even sharper, partially due to lower volumes of gas imports External official financing and decline of FX cash outside banks were the main drivers for the net inflows in financial account The overall balance of payments posted a surplus of USD.8 billion in 215 (in contrast to USD 13.3 billion deficit in 214) 5

6 IV.212 II.213 IV.213 II.214 IV.214 II.215 IV.215 II.216 IV.216 II.217 IV.217 IV.212 I.213 II.213 III.213 IV.213 I.214 II.214 III.214 IV.214 I.215 II.215 III.215 IV.215 I.216 II.216 III.216 IV.216 I.217 II.217 III.217 IV.217 IV.212 I.213 II.213 III.213 IV.213 I.214 II.214 III.214 IV.214 I.215 II.215 III.215 IV.215 I.216 II.216 III.216 IV.216 I.217 II.217 III.217 IV.217 IV.212 I.213 II.213 III.213 IV.213 I.214 II.214 III.214 IV.214 I.215 II.215 III.215 IV.215 I.216 II.216 III.216 IV.216 I.217 II.217 III.217 IV.217 but is to be hit by the sharply deteriorating terms of trade Ferrous Metals Export Price, USD per t previous forecast current forecast (-24.6) (4,3) Grains Export Price, USD per t previous forecast current forecast (-14.2) -4.7 (5.5) Source: own estimates Crude Oil Brent Price, USD per barrel previous forecast current forecast (-45.7) (-3,7) Source: own estimates Imported Gas Price, USD per 1 m3 previous forecast current forecast (-3.8) -3.7 (3.7) -4.3 Source: own estimates Source: own estimates Data in the tables represents average price changes, % y-o-y 6

7 12/99 12/ 12/1 12/2 12/3 12/4 12/5 12/6 12/7 12/8 12/9 12/1 12/11 12/12 12/13 12/14 12/15 1,3 1,2 1,1 1,,9,8,7,6,5 The slide in EM currencies erodes the competiveness of the Ukrainian economy Hryvnia REER Index (Based on Interbank Exchange Rate), Dec-1999=1 Source: IFS, NBU staff estimates (preliminary data) Emerging Market Currencies versus US Dollar (% change, eop) AZN KZT BYR ARS BRL ZAR GEL MDL TRY RUB RON HUF PLN CNY -99,5-86,6-69,5 January ,9-48,8-33,9-27,5-26,2-25,4-21,7-13,9-7, -7,4-2,9-1,6-2,7-3,6-2,6-1,5-3, -12,3 -,8-11,5-3,4-11,2-1,3-4, Source: Thomson Reuters Datastream 1,2 7

8 215 Russia Import surchage EU Others Volumes Prices Russia Transit Import surchage EU Volumes Prices The external position in 216 is further damaged by the retaliation measures by Russia and abolition of special import surcharge Previous forecast, USD bn Actual forecast, USD bn -,5 -,5 -,2-1 -1,5 -,8 -,3-1,2-1 -1,5-2 -,6 -,5 -,5 -,1-2 -2,5 -,8 -,3 -,1-2,5-3 -,6 -,1-2,5-2, -3 -, Food exports to Russia almost stopped since January 1, 216 Russia repealed the Free Trade Agreement with Ukraine since January 1, 216. That resulted in increase in imports duties to 5%-2% from % (average weighted 7.7%). Also, Russia will be able to implement additional quotas, bans and others non-tariff limitations Losses of exports to third countries due to a transit ban through Russia s territory estimated to USD.46 bn. (calculations includes possible exports reorientation through the other routes) 8

9 1/14 2/14 3/14 4/14 5/14 6/14 7/14 8/14 9/14 1/14 11/14 12/14 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 1/15 11/15 12/15 1/16 2/ NBU keeps tight monetary stance aiming at bringing inflation down to 12% target by end-216 Overnight Interbank IR and NBU Policy Rate, % pa (as of ) Overnight interbank IR Discount rate Overnight credit rate Inflation objectives Overnight deposit rate IR on loans for up to 3 m. 24.% 22.% 21.3% 18.% Source: CredInfo; NBU Easing of the monetary stance, started in August last year, has halted recently amid the delay in IMF program, elevated political risk and deteriorating terms of trade To re-anchor public expectation from the exchange rate to price stability the NBU put a strong focus on reaching 12% inflation target in 216 At the same time, to manage pass-through effect from the exchange rate to prices, the National Bank is trying to smooth exchange rate fluctuations by conducting FX interventions on both sides Tight capital controls, introduced in , remain largely in place, as the prerequisites for the removal have not been met yet 9

10 Policy stance is conditional on the political and macroeconomic developments Scenario Results NBU actions Base scenario GDP +1.1% +3% CPI 12% 8% Administrative measures Key rate Pessimistic - Escalation in the East - Commodity prices - Impact of Russian factor - Political instability GDP UAH/USD CPI Administrative measures = Key rate = Optimistic - Commodity prices - Privatization - Structural reforms GDP UAH/USD CPI Administrative measures Key rate 1

11 NBU policy actions: Gradual transition to inflation targeting regime CURRENT TARGETS TO ACHIEVE: Disinflation (inflation target for %)/Maintaining FX market stability Successful implementation of the IMF program Replenishment of international reserves Gradual elimination of administrative measures Future evolution of MP regime and goals Stage 1. Monetary targeting (framework of IMF program): accumulation of international reserves targets on NDA, base money and NIR flexible exchange rate disinflation Stage 2. IT lite: price stability (1-digit target - 5%) as ultimate goal of the NBU monetary policy accumulation of international reserves interest rate as a key instrument Stage 3. Full-fledged IT: price stability (CPI target 5%) as ultimate goal of the NBU monetary policy floating exchange rate Improvements that already done Establishment of NBU Board`s regular meetings on Monetary Policy issues. Decision making process is: Clear and transparent Forward-looking Analytically supported More transparent and market-friendly MP instruments framework Raising the role of key policy rate Liquidity providing / absorbing auctions Simplification of RR framework Improved communication framework: Development of comprehensive communication strategy Revamp of NBU analytical product line, including the publication of Inflation Report 11

12 NBU policy actions: revamping the banking system, liberalizing capital account and transforming the central bank Revamping the banking system Ensuring adequate capitalization of the banking system: conducting diagnostic studies and stress-testing sticking to the recapitalization schedule Solving the related party lending problem Addressing NPLs Strengthening banking supervision: improving early warning signal system and implementing consolidated supervision developing and implementing macroprudential supervision tools ensuring transparent banks ownership structure making thorough analysis of banks business models Priorities in other sectors Foreign exchange liberalization: cancelling the outdated Foreign Exchange Regulation Decree and reducing the number of regulatory acts in this field liberalizing export of services developing the long-term strategy of liberalizing capital account The development of cashless payments ( Cashless economy project) An overhaul of Ukrainian securities market (jointly with the National Securities and Stock Market Commission) and setting up the efficient system of integrated prudential risk based supervision ( Risk based supervision ) The continuation of internal transformations aimed at implementing the NBU s vision, mission and values, and, also, enhancing the efficiency of internal processes, and implementing the process management Implementation of electronic document circulation 12