KIEV, March 27 – Prime Minister Yulia Tymoshenko admitted Thursday that her government has failed to curb inflation, but added the failure was partially due to the “very controversial” monetary policy of the National Bank of Ukraine.
Tymoshenko said more action from the NBU, and also from the government, will probably be needed if official reports in early April show consumer prices growing fast in March.
“All measures the government implemented jointly with the National Bank have not produced any impressive results,” Tymoshenko said at a meeting with foreign diplomats Thursday. “Inflation continues to be very high.”
The comment is a rare case in which Tymoshenko has actually admitted the failure by her government in a key area of economic policy.
It comes two months after she had defied most analysts by insisting the government will manage to keep inflation at 9.6% in 2008 despite their forecasts that inflation may actually hit between 14% and 16%.
Ukraine’s consumer prices rose 2.7% on the month in February, compared with 2.9% in January, according to the State Statistics Committee.
If measured at an annual basis, inflation was reported at a shocking 21.9% in February compared with February 2007, according to the committee.
Most economists see Ukraine’s high inflation as the key macroeconomic challenge for the country, whose economy has been growing robustly over the past eight years.
Although admitting the failure, Tymoshenko had also blamed the NBU for its “controversial” monetary policy that she said had been contributing to the inflationary trend.
“It’s hard to stop these trends under very controversial monetary policy and the policy on the consumer market,” Tymoshenko said.
“We’re taking the anti-inflationary measures since January,” Tymoshenko said. “March may show signs whether we have to strengthen our joint work with the National bank.”
Tymoshenko’s comments underscore her unease with the NBU’s policy of pegging the hryvnia to the U.S. dollar. She, and well as Finance Minister Viktor Pynzenyk, have been pushing for the appreciation of the hryvnia in a move to slow down inflation.
During Tymoshenko’s first tenure on the post of the prime minister in 2005, she had apparently managed to persuade the NBU to sharply appreciate the hryvnia against the dollar overnight in April 2005.
The appreciation sent shockwaves through Ukrainian businesses, badly hurting steel exporters, and leading to the increased imports that had sharply reduced the country’s trade surplus.
Analysts said the appreciation was still a possibility.
"We expect the government will tighten monetary policy, as inflation continues to increase,” Alfa Bank said in a research report last month. “The government might also resort to less traditional measures, such as a sudden and sharp revaluation of the hryvnia."
Meanwhile, the NBU has been scrambling over the past two days to stop the sudden appreciation of the hryvnia against the dollar that had recently caused turbulence on the forex market.
The NBU allowed Naftogaz Ukrayiny, the national oil and gas company, to buy hard currency without producing foreign trade contracts as a way of increase demand for dollars. (tl/ez)