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54 I Eastern Europe bne July 2021
When Kyrylo Shevchenko took over as Governor of the National Bank of Ukraine last year he walked straight into a major crisis. However, progress already made in cleaning up the sector meant the financial sector has weathered the storm comfortably and is now back in profit.
INTERVIEW:
Kyrylo Shevchenko, Governor of the National Bank of Ukraine
just ended, were down by 22% year
on year to 43.4mn tonnes, global food prices were up 40% y/y, more than compensating for the weaker harvest. This year the grain harvest is predicted to be a good one.
In general, trade is going well and switched from perennial current account deficits to regular surpluses in the last year that are extending into this year as well, making the NBU’s life easier. The exports of goods were up by 16.7% y/y over the first four months of this year. Mining exports were up 85.4% y/y and metallurgical products up by 38.8% y/y, leading to a positive current account surplus and growing gross international reserves that has caused the hryvnia to strengthen. Shevchenko has an economy on an upswing to work with.
The rate hike that didn't happen
The main problem the economy faces is a return of inflation. The NBU covered itself in glory in 2019 by not only controlling inflation, but crushing it completely. Inflation fell to 1.7% in 2019 – a post-Soviet low. That allowed the NBU to rapidly cut rates month after month, sometimes by full percentage points.
That has changed recently thanks to the multiple economic shocks in the last year, and inflation soared to 9.5% in May from an already elevated 8.4% in April.
Prime central bank interest rates for Emerging Europe (click on the region legend to include/exclude a region.)
The NBU was the first to act of all the central banks in emerging Europe by ending the easing policy and hiking rates in March (50bp) and April (100bp), but surprised the market by leaving them flat in June, when many analysts were expecting another 100bp hike due to the high rate of inflation the month before.
“May inflation was driven by gas prices, food and especially sunflower oil price rises. But we are optimistic that we can hold these price increases in check,” Shevchenko said.
The governor argues that inflation pressures have already peaked and there
Ben Aris in Berlin
The National Bank of Ukraine's (NBU) clean-up of the banking sector and prudent monetary policy, have been some of the outstanding success of Ukraine’s
battle to drive through comprehensive reforms and put the country on track for sustainable growth and prosperity.
But Ukraine being Ukraine, the path
is not straight and making changes is hard. Since the Revolution of Dignity
in 2014 there have been three central bank governors and bne IntelliNews met with the latest, Kyrylo Shevchenko, who was appointed last summer, for his first interview with the international press.
Since Shevchenko arrived on the job he went straight into crisis mode as Ukraine faced the double whammy of an oil price shock and the coronavirus (COVID-19) pandemic sweeping through the
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under-resourced country. At the same time, he needed to maintain the reform momentum built up by his predecessor.
“Despite the heavy impact of the first lockdown, Ukraine weathered the crisis better than expected. The Ukrainian economy will return to steady growth starting in the second quarter. NBU expects that in 2021-2023 the economy will grow by about 4% annually,” Shevchenko said, speaking to bne IntelliNews by video link from the NBU headquarters on Instytutska Street in central Kyiv.
A boom in commodity prices that started in about November brought much needed cash into the economy and has assuaged the impact of the 2020 crisis. Metal prices, a major export product, are at multi-year highs. And while Ukraine’s exports of grain last marketing year,