Ukrainian National Bank sides with Finance Ministry to fill domestic debt market and avoid emission - National Bank head

MOSCOW. April 17 (Interfax) - The avoidance of Ukrainian budget deficit funding by monetary emission remains a key task of the National Bank of Ukraine, which is ready to use every available option or even suggest new ones to facilitate the Ukrainian Finance Ministry's operations on the domestic debt market, National Bank head Andrei Pyshny said.

"All of us are trying to avoid dangerous emission. [...] We must find and use every available option or, whenever that is not available, change the situation and meet the budget demand without monetizing the deficit [monetary emission]," Pyshny told Ukrainian media outlets in Washington.

Forced over-target emission is a quick solution to meet current budget needs created by the crisis, yet it poses an incredible threat to macroeconomic and price stability, he said.

"The cure should not be more dangerous than the disease. [...] The Ukrainian National Bank should stay adamant about the provision of price and financial stability, back the Finance Ministry in filling the domestic debt market, and create prerequisites for the gradual return to market fundamentals and regulatory policies," Pyshny said.

The reset of relations between the National Bank and the Ukrainian Finance Ministry has tangibly boosted the efficiency of efforts taken under their institutional mandates and in joint operations and targets, including the prevention of budget deficit financing by emission since 2023, he said.

Ukraine raised over 110 billion hryvni on the domestic debt market during the first three months of this year, compared to 164 billion hryvni raised last year, including practically a third raised by the Finance Ministry in November and December, after the change of administration in the National Bank, Pyshny said.

While commenting on the opinion that result has been achieved much thanks to the National Bank's decision to increase the norms of mandatory reserves and to allow banks to form 50% of such reserves with domestic bonds, he said it was quite an acceptable move.

"Mandatory reserves are an instrument of the Ukrainian National Bank's monetary policy. The domestic bonds' benchmark is not something unique. All of that helps look looking for balance, understand the target, and perceive the stance and impulses of the National Bank," Pyshny said.

The reshuffle allowed correcting the mistake and resuming dialogue between the institutions in the language of arguments with mutual respect for their mandates, he said.

"We are seeing the government's response to our proposals, are observing the efficiency of our common efforts, and are ready to calibrate our decisions, which enhance our ability to maintain macro-financial stability and to draw support from international partners," he said.

Pyshny said that the National Bank's mandate does not envisage direct borrowings, however, his presence at the meetings in Washington together with Prime Minister Denis Shmygal and Finance Minister Sergei Marchenko shows donors and key stakeholders, on whom the decision depends, the good domestic interaction and the ability of Ukraine to pursue the declared policy.

The effective interaction between the government and the Ukrainian National Bank in dealing with challenges and maintaining stability lessens the uncertainty and enhances the Ukrainian capacity for drawing support," Pyshny said.