Weak governance can undermine the credibility of the inflation targeting regime – there is a risk that the government or Parliament will force the national Bank (NBU) weakened control, causing a possible inflationary effect. This is stated in the study by the International monetary Fund (IMF) about the transition to inflation targeting and effectiveness of monetary policy.
According to IMF estimates, one of the ways pressure on the NBU can be a restructuring of the securities in its portfolio or indirect support of the legislative (address) loan.
In addition, the Fund noted that despite the legislative prohibition of financing by the national Bank of the budget deficit, the government may try to exert pressure on the NBU monetary policy or other decision-making.
The IMF assesses that risk in Ukraine is higher than in many other emerging market economies switched to inflation targeting, because it believes that the Ukrainian government continued to improve its management system.
The Fund also sees merit in the proposal of the Bank to release to the market of government securities, indexed on inflation rate, can be a more effective incentive mechanism than the restructuring of the bonds in the portfolio of the NBU.
As reported, the results of the third review of the EFF program, the IMF urged Ukrainian authorities to achieve more rapid and sustainable growth to accelerate structural reforms, starting with privatization and market development of agricultural lands, and noted the lack of concrete results in the fight against corruption.
