From Central Banking Magazine, March 13:
Central bank of the year: National Bank of Ukraine
NBU maintained financial and macroeconomic stability in the face of extreme shocks
The National Bank of Ukraine’s history has been tumultuous since 2013. The country’s then-president appointed a new governor, Valeria Gontareva, following the Euromaidan uprising of that year. Gontareva reformed the NBU’s governance, changed its monetary policy framework, averted a foreign exchange crisis and cleaned up much of the banking sector, despite strong resistance. Her successor, Yakiv Smolii, came under severe pressure from oligarchs determined to reverse the NBU’s banking reforms, and was effectively dismissed by president Volodymyr Zelensky in 2020. Factional disputes continued to cause difficulties for senior management and the next governor, Kyrylo Shevchenko.
But from February 2022, when Russian president Vladimir Putin ordered the invasion of Ukraine, the NBU had to face even greater challenges. It had been preparing for war ever since Russia annexed the Crimea region and supported separatist rebels in the east in 2014. NBU staff planned for every contingency they might face in wartime, such as addressing issues related to cyber security, currency support, banking stability and the safety of staff. At the beginning of 2022, NBU officials believed Russia might take limited military action and started to get ready for a possible escalation of hostilities. The prospect of war put growing pressure on the hryvnia and, on January 20, the NBU board hiked its policy rate by 100 basis points.
Then, Russian forces invaded on February 24, with some soon reaching the outskirts of Kyiv, just kilometres from the headquarters of most Ukrainian banks. With the banks and hubs of the country’s payment system infrastructure under threat, NBU officials activated full continency planning protocols. To diversify risk and to enable the NBU leadership to continue to work in unprecedented wartime conditions, it was decided that NBU management would relocate away from the capital toward safer regions. Most of the senior NBU officials left Kyiv, although first deputy governor, Kateryna Rozhkova, stayed in the capital.
As the invasion started, the NBU board dropped inflation targeting as its main policy goal, replacing it with support of the hryvnia. It imposed tough exchange rate restrictions and focused on large interventions to support the currency’s value, while extending billions of dollars of financing to the government. But all senior NBU officials understood that these emergency policies would be unsustainable in the long run, deputy governor Sergiy Nikolaychuk tells Central Banking. As the war progressed, the NBU would have to calibrate its policy mix to the changing circumstances.
The currency needs of around eight million refugees who had fled abroad, as well as five million displaced internally, added to the strain....
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