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Monetary Policy in Ukraine

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Title: Monetary Policy in Ukraine


1
Monetary Policy in Ukraine
  • By
  • Adesokan Mariam
  • Mek-11a

2
Monetary policy
  • Monetary policy or credit policy is the process
    by which the monetary authority of a country
    controls the supply and availability of money,
    often targeting a rate of interest for the
    purpose of promoting economic growth and
    stability.
  • It employs a variety of methods to control
    outcomes like inflation, economic growth,
    currency exchange rates and lower unemployment.

3
  • Contractionary or Tight Policy is the policy of
    decreasing the money supply and increasing
    interest rates to dampen the economy by
    discouraging bank loaning.
  • Problem Inflation
  • Measures
  • Central bank sells securities through open market
    operation
  • It raises CRR SLR(Statutory liquidity ratio)
    bank rate

4
Tools of Monetary Policy
  • There are four basic tools or instruments of
    monetary policy which can be used to achieve
    economic price stability by influencing
    aggregate demand or spending in the economy.
    These tools are-
  • Open market operation.
  • Changing the bank rate.
  • Changing the cash reserve ratio.
  • Undertaking selective credit controls.

5
  • Monetary decisions in Ukraine today takes into
    account a wide range of factors such as
  • Short term interest rates
  • Long term interest rates,
  • Exchange rates,
  • Credit quality,
  • Bonds equities (corporate ownership debt),
  • Govt. vs. Private sector spending/savings,
  • International capital flows of money on large
    scale.

6
National bank of Ukraine monetary policy indicators National bank of Ukraine monetary policy indicators National bank of Ukraine monetary policy indicators National bank of Ukraine monetary policy indicators National bank of Ukraine monetary policy indicators
Monetary base Monetary base Monetary base Monetary base Monetary base
Period Monetary base Including Including Including
Period Monetary base currency in circulation transferable deposits to other deposit-taking corporations transferable deposits to other sectors
1 2 3 4 5
  outstanding amounts at end of period, in millions of hryvnias outstanding amounts at end of period, in millions of hryvnias outstanding amounts at end of period, in millions of hryvnias  
2008 186,671 167,538 18,623 510
2009 194,965 170,536 23,183 1,246
2010 225,692 200,092 24,404 1,195
2011 239,885 209,565 29,185 1,135
2012 255,283 222,786 31,158 1,340
7
Importance of Monetary Policy in Ukraine economy
  • It regulates currencies and reserves.
  • Manages the monetary and the credit system.
  • Maintains the par value of domestic currencies.
  • Promotes and maintains a high level of
    production, employment and economic growth.
  • Ensures balance of equilibrium.
  • Creates full employment.
  • Regulates neutrality of money.
  • Ensures equal income distribution.

8
Problems of Monetary Policy in Ukraine economy
  • The growth of money supply emission
  • Delaying the measures to rein in inflation
  • Using bonds as a major source of financing the
    budget deficit
  • Reducing the surplus trade balance
  • Slowdown in GDP growth
  • The imbalance of public finances

9
Types of monetary policy
  • The distinction between the various types of
    monetary policy lies primarily with the set of
    instruments and target variables that are used by
    the monetary authority(NBU-National Bank of
    Ukraine) to achieve their goals.

10
Types of monetary policy
Monetary policy Target Market variable Long term objective
Inflation Targeting Interest rate on overnight debt A given rate of change in the CPI
Price Level targeting Interest rate on overnight debt A specific CPI number
Monetary Aggregate The growth in money supply A given rate of change in the CPI
Fixed exchange rate The spot price of the currency The spot price of the currency
Gold standard The spot price of gold Low inflation as measured by the gold price
Mixed policy Usually interest rates Usually unemployment CPI change
11
Current issues of monetary policy in Ukraine
  • Monetary policy is currently a highly politicised
    issue in Ukraine. It is necessary to distinguish
    three fields the stance, the instruments and the
    use of instruments of monetary policy.
  • Stance Inflation has certainly slowed down in
    recent times, but it is still rather high
    (14.1). Inflation expectations are even higher
    (17 according to latest NBU information).

12
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13
Conclusions
  • Policy makers usually call on the NBU to relax
    its restrictive policy stance. But a relaxation
    would create additional problems (higher
    inflation, weaker currency), without contributing
    much in
  • supporting the real sector.
  • The presence of a credit crunch is mainly due to
    a lack of confidence, not a lack of liquidity.
  • Consequently, there are lack of access by several
    banks to NBU's loans and it is highly
    problematic. It is crucial that all banks are
    treated in the same way.

14
THANK YOU
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