Prices Ready for Takeoff
On January 15, NBU Board Chairman Anatoly Halchynsky put his cards on the table with which the National Bank will be playing this year (“arguably the most difficult in recent years”) on the inflation and exchange rate field. Notably, it was clear from the start that last year’s deflation, which, to quote Mr. Halchynsky, had no monetary reasons behind it (that is to say, the NBU had nothing to do with it), will not repeat again. The more so that, according to the NBU, “deflationary trends in the price dynamics in 2002” can be considered “a trend that puts at risk further positive development of the Ukrainian economy.”
At the same time, speaking about the inflation rate planned by the government for this year (a 6% increase in the level of prices from the previous year), Mr. Halchynsky stressed that it is quite a high index for Ukraine (last year’s consumer price index in the country was 99.4%). The EU has set a 2% ceiling on the inflation rate for its prospective member states, and many countries, according to Mr. Halchynsky, consider it a tragedy when their inflation rate reaches 2.3-2.5%. On the other hand, the NBU Board Chairman believes that it will be quite difficult for Ukraine to stabilize inflation at this level, inasmuch as a professional approach is a major problem when it comes to the state’s regulation of the economy (take, for instance, the budget bill which the president was forced to sign only for political reasons). According to Mr. Halchynsky, a determining factor in the increase in retail prices on the consumer market in 2003 will be the growing wholesale prices of producers in industry, which were up 5.6% in 2002. In previous years, industry prices increased at a slower rate, thus containing prices on the consumer market. However, what threatens to touch off an inflationary spiral is the economy itself with its continuing negative trends. To illustrate, against the 9% GDP growth rate in 2001, GDP was up a mere 4% in 2002. If this trend continues, we should not expect GDP growth to exceed 2.5 — 3% in 2003, “unless we resort to tactics of screw-tightening and arm-twisting, which, in my view, are not effective.”
Speaking about this year’s macroeconomic indices for the hryvnia exchange rate (UAH 5.48 to a dollar), the monetary base and supply, Mr. Halchynsky stressed that the currency-and-credit policy is becoming more rigid. As he put it, no changes are expected at least through the end of the second quarter. This view, according to him, tallies with the plans of NBU Governor Serhiy Tihipko.
At the same time, answering The Day’s question, Mr. Halchynsky spoke in favor of the NBU’s cooperation with the government aimed at the innovatory development of the Ukrainian economy. However, he spoke against NBU deciding whether the innovatory projects are worth implementing, which was mentioned in one of its resolutions. Citing his busy schedule, Mr. Halchynsky reiterated his intention to quit his post as NBU Board Chairman. As The Day has learned from a reliable source, it is not to be ruled out that Mr. Halchynsky may change his mind under the president’s influence. Simultaneously, former NBU governor Volodymyr Stelmakh, according to the source, is not too enthusiastic about the possibility of heading the NBU Board of Directors, while there are both legal and logical preconditions for Mr. Tihipko to combine both posts.
Put simply, this year Ukrainian citizens may witness a symbiosis of rigid monetarism, introduced by Stelmakh and Halchynsky, and gradual liberalization of the monetary and credit sphere, so far only promised by Tihipko. Commenting on the situation, Valery Lytvytsky, senior adviser to the NBU Governor, told The Day that, starting with the third quarter, the National Bank could consent to a money supply exceeding the planned volumes, provided the economy keeps growing, the populace does not panic at the inflation and rush to withdraw its savings from banks, budget revenue targets are met, and political stability is maintained.
