NBU Introduces Managed Flexibility of Exchange Rate

Ukraine's central bank has announced a shift in its exchange rate policy, moving away from a fixed currency rate that has been in place during the conflict with Russia. The new approach, described as "managed flexibility," signifies the central bank's growing confidence in its ability to manage liquidity and maintain stability, given its sufficient foreign exchange reserves after 19 months of war with Russia.

According to the National Bank of Ukraine (NBU), this new exchange rate will be determined through interbank foreign exchange operations, with active involvement from the central bank. The NBU emphasized its commitment to closely monitoring the foreign exchange market and playing a significant role in it.

The NBU explained that this managed flexibility approach would allow for changes in the exchange rate in both directions, strengthening and weakening the hryvnia. It would also impose limits on exchange rate fluctuations to prevent significant depreciation or appreciation of the currency.

This change in exchange rate policy is intended to enhance the stability of the Ukrainian economy and foreign exchange market, making them more adaptable to internal and external conditions. It aims to reduce the risks associated with maintaining a fixed exchange rate over the long term. Additionally, the NBU sees this shift as a crucial step towards returning to inflation targeting in the future while emphasizing that maintaining exchange rate stability remains a top priority for the central bank.

"Exchange rate sustainability will continue to be one of the NBU’s priorities. It stands to be instrumental in the further deceleration of inflation and in bringing it to the medium-term target of 5%," according to the announcement.