OREANDA-NEWS. May 28, 2012. On 21 May 2012, Governor of the National Bank of Ukraine Sergiy Arbuzov held a working meeting with the representatives from the European department of the International Monetary Fund. Regular consultations under Article IV of the IMF's Articles of Agreement are to be conducted at the first meeting held during the one-week visit of the representatives from the IMF's European Department to Ukraine.

In the course of the meeting, the Governor of the National Bank of Ukraine noted that cooperation with the International Monetary Fund remains a strategic task for Ukraine and informed all the attendees about the main strands of work carried out by the National Bank of Ukraine. In particular, Mr. Sergiy Arbuzov in his speech drew attention of the representatives from the IMF's European Department to considerable progress made by Ukraine towards implementing the complex reform strategy initiated by the President of Ukraine.

The Governor of the National Bank of Ukraine placed an emphasis on the fact that the Ukrainian economy had performed well in 2011 and in the first four months of 2012. According to him, Ukraine has made significant progress in the macroeconomic sphere over this period. In particular, inflation has been on a downward trend for the second successive year, having reached historical lows. Thus, annual CPI inflation stood at 4.6% in 2011, having fallen to 0.6% in April 2012.

"Annual core CPI inflation has been on a strong downward trend for the eighth consecutive month, currently standing at 4.7%. Inflation expectations of enterprises have fallen, reaching the minimum level recorded in the past six years. GDP keeps growing: plus4.2% in 2010, plus5.2% in 2011 and plus1.8% in the first three months of 2012," noted Mr. Sergiy Arbuzov.

The Governor of the National Bank of Ukraine noted that the exchange rate remains stable due to market forces, with the share of transactions carried out by the National Bank of Ukraine in the foreign exchange market since the start of the year standing at 1.6%. Furthermore, Mr. Sergiy Arbuzov drew the attendees’ attention to the upward trend in the international reserves seen in the past three months. It’s worth noting that the growth in the international reserves has not been induced by borrowings. Ukraine is committed to fulfilling obligations under its external contracts.

“At the beginning of 2012, Ukraine’s public debt shrank to 36% of GDP versus 39.9% of GDP at the start of 2011. What is more, March saw a surplus in the Balance of Payments of Ukraine, indicating an improvement in the BOP. In the first quarter of 2012, the current account deficit retreated to 3.4% of GDP against 4.1% recorded in the same period of the previous year," said the Governor of the National Bank of Ukraine.

“The National Bank has put a lot of effort to enhance the role of the discount rate. We are trying to ramp up our interest rate policy efficiency. For this reason, interest rates on refinancing transactions have been cut three times since the start of 2012. Apart from that, the discount rate has been reduced. The National Bank of Ukraine has introduced a legal framework for a more flexible bank liquidity management by reducing the amount of required reserves to be held by banks on a separate account with the National Bank of Ukraine from 70% to 60%. Starting from 31 May 2011, the banks will be required to hold 50% of required reserves on a separate account with the NBU. As a result, the banks will be able use the funds withdrawn from the separate account during the business day,” added Mr. Sergiy Arbuzov.

The Governor of the National Bank of Ukraine pointed out to some improvement in banks’ performance: the banking system’s total assets are growing, the banks’ authorized capital is increasing and loans, including loans granted to the economy, are on an upward trend. Overall, public confidence in the banking is increasing, household deposits are climbing, and the banking system has made a profit of UAH 1.8 billion over four months of 2012 (the banking system made a loss of UAH 7.7 billion in 2011).

Mr. Sergiy Arbuzov also reminded that four draft laws had been passed the previous year: on enhancing bank transparency, on supervision on a consolidated basis, on protection of creditors’ and consumers’ rights, and on the peculiarities of the corporate governance of banks, which had been elaborated in cooperation with the banking community and international financial organizations.

“The Law of Ukraine “On Individual Deposits Guarantee System” has been passed this year, according to which the National Bank of Ukraine delegates the function of removing banks’ non-performing assets from the market to the Household Deposit Guarantee Fund,” said Mr. Sergiy Arbuzov.

Finally, the sides discussed issues regarding potential risks faced by the Ukrainian economy and ways to minimize these risks; they agreed to hold at least three working meetings during this week in order to address all the issues related to cooperation between Ukraine and the International Monetary Fund.