Page 108 - Azerbaijan State University of Economics

CONTRIBUTION OF BANKING SYSTEM INTO FINANCIAL STABILITY OF UKRAINE

In order to increase the flexibility of the exchange rate, the National

Bank of Ukraine has introduced new instruments of currency market regulation,
improved the system of macroeconomic situation and business expectations

monitoring, the methodology of monetary policy, and strengthened the

communication policy. Expansion of the central bank's communication with the
public on the causes and dynamics of the exchange rate forecast, targets and

regulatory measures had a positive impact on inflation expectations, which were
intensified by exchange rate changes.

Today, the stability of the national currency is treated by specialists
of the National Bank of Ukraine as support to particular dynamics of the

exchange rate and preventing sudden changes in the exchange rate, while

allowing minor fluctuations compliant with guidelines established by long
term goals (Actions of NBU during the period of global financial crisis

exacerbation, NBU, 2009). Such exchange rate dynamics need to have a
positive impact on inflation dynamics, in particular, to reduce inflationary

expectations, strengthen financial stability and improve external
competitiveness. Also, it gradually destroys the stereotype around a fixed

exchange rate, hence, expanding capacity of monetary policy.

Introduction of flexible exchange rates regime in the mechanism of
financial stability can be considered as preventive measure, but creates long-terms

preconditions for violations of exchange rate stability.
Other tactical measures in terms of maintaining stable exchange rate

mostly have administrative and restrictive nature. The main drawback of
these measures is their short effective period, after which economic agents

find alternative ways to circumvent the established restrictions, or limitations

have negative implications for the financial system development. Thus, the
reverse side of foreign currency lending limits is the outflow of capital from

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