Ukrainian PM calls for better coordination of joint work with National Bank of Ukraine

MOSCOW. July 4 (Interfax) - Ukrainian Prime Minister Denys Shmyhal has criticized the National Bank of Ukraine for raising the discount rate from 10% to 25% without discussing this decision with the Financial Stability Council and the national government.

"The National Bank had and still has this option and, of course, I ask the National Bank to convene a meeting of the Financial Stability Council and to contact the government whenever such fateful decisions are made for better coordination of the joint work," Ukrainian media outlets quoted Shmyhal as saying in an interview with LB.ua.

Shmyhal confirmed that the National Bank of Ukraine is an independent regulator but regretted that "the National Bank does not prioritize its function of the provider of economic stability and macro-stability."

He said, however, there are no tensions in the relations between the government and the National Bank.

"Once again, the National Bank is an independent regulator but I have always called for the joint, coordinated work, and I will continue to do so. There is every instrument necessary for doing it, so we have not sent any covert or overt messages to anyone. We only ask for a coordinated and balanced approach to decisions that have an impact on the economy," Shmyhal said.

The National Bank of Ukraine raised the discount rate from 10% to 25% on June 3 to ease the pressure on the hryvnia and to increase market financing of the budget. However, despite calls from the National Bank, the Finance Ministry refused to raise the yield of domestic government bonds, following an increase of the discount rate.

The Financial Stability Council, which includes the National Bank governor, his two deputies, the finance minister and his deputy, the deputy chief of staff of the Presidential Office for economic policy, and the heads of the National Securities and Stock Market Commission of Ukraine and the Deposit Guarantee Fund, met on June 23. The National Bank said after the meeting that the Financial Stability Council approved the optimization of public expenditures, an increase in revenue, a more intensive domestic market borrowings, and higher predictability of international assistance as key to reducing the budget deficit and the amount of its monetary financing.

"Members of the Financial Stability Council discussed the extremely negative consequences of the excessive monetary financing of the budget deficit for the macroeconomic stability [since the beginning of the conflict, the National Bank of Ukraine directly purchased government bonds from the Finance Ministry in the amount of UAH 225 billion, including UAH 105 billion in June]. The consequences were particularly pronounced in the effect on the forex market," the National Bank of Ukraine said after the meeting.

However, the Finance Ministry again refused to raise the yield of domestic government bonds and kept the rates within 9.5-11.5%.