Page 110 - Azerbaijan State University of Economics

CONTRIBUTION OF BANKING SYSTEM INTO FINANCIAL STABILITY OF UKRAINE

limited in size to meet the needs for adjustment of the exchange rate and

correspond with the potential of the central bank to maintain the required level
of reserves.

One of the risks of inflation targeting is the potential expansion of

exchange rate fluctuations range, and, as a consequence, increased inflation
expectations. There are still feasible risks of speculative attacks against the

national currency, the risk of loss of confidence in the central bank in case of
failure to guide the inflation, although the reasons may be outside of the direct

influence of instruments and mechanisms of monetary policy.
For a proper introduction of inflation targeting is important to carry

out a number of legal, institutional and structural changes:

- To ensure the full independence of the central bank in the
formulation of monetary policy based on inflation targeting;

- A certain goal should be defined for the central bank for a certain

period to create appropriate conditions for the development of a set of
measures and instruments to achieve the goal;

- It is reasonable to take action with respect to the development of
markets and additional hedging instruments, to develop a transparent

mechanism for intervention to limit the adverse exchange rate fluctuations;
- It is essential to expand analytical and predictive capability of the central

bank with regard to relative assessment of the impact of monetary policy

instruments on the economy;
- The communicative system of the central bank should be improved,

including mechanisms mutual information exchange with other governments,
banks, businesses, the public, which will contribute to a better understanding of

the actions of the central bank to achieve inflation targets, improve the quality of
predictions on the dynamics of inflation expectations, will boost confidence in

the banking system .

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