KYIV (Reuters) – Ukraine will have to maintain its central bank’s independence under the next governor as a component of a $5 billion deal with the International Monetary Fund, the IMF official told a local news site in comments published Friday.
The governor of the National Bank of Ukraine, Yakiv Smoliy, resigned on 1 July, complaining of “systematic political pressure”, weeks after Ukraine received IMF approval to combat the economic crisis through the coronavirus pandemic.
Its exit rocked the market, forced the government to abandon a 12-year Eurobond supply for $1.75 billion, and raised doubts about foreign lenders, adding that the IMF would freeze loans.
Ukrainian dollar-denominated bonds have been tense since Smoliy’s departure and went back Friday, with some problems wasting more than 1 cent in the industry in the last few degrees noticed in early June.
Goesta Ljungman of the IMF did not comment directly on whether Ukraine was violating the agreement with the IMF, but said that “the fact that NBU control brabably declares that it is under political pressure is one of fear to all.”
In the IMF’s top detailed remarks since Smoliy’s resignation, Ljungman said maintaining central bank independence is important for maintaining sound financial and fiscal policies and sustainable economic growth.
“There are well-established links between central bank independence and economic performance,” he said in an interview with Liga.net.
He said a central bank independence framework established in 2015 in line with more productive foreign practices had temporarily helped Ukraine from an economic crisis in 2014-15.
“The existing confirmation agreement is on compliance with this framework and on the continuation of economic policies to tackle inflation, a floating exchange rate, the accumulation of foreign exchange reserves and the strengthening of the monetary sector,” Ljungman said.
President Volodymyr Zelenskiy, who is expected to appoint a new governor in a few days, said the central bank’s independence has a good reputation. But he also called for an interest rate cut this week to lend to businesses and individuals.
Last month, the central bank cut interest rates to 6%, the lowest rate since independence in 1991, critics say it has cut rates too slowly.
Reporting through Natalia Zinets; edited through Matthias Williams, Larry King
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