Wednesday, January 28, 2015

National Bank of Ukraine's plan: More inflation

Ukraine plans to inflate its way out of economic troubles. Like nothing can go wrong there...

Ukraine plans to inflate its way out of economic troubles. As National Bank Governor Valeriya Gontareva said on Jan. 16, the monetary base will increase by 27 percent this year.

This means turning on the money printing press.

As inflation almost reached 25 percent last year, more cash in the system brings another risk that the hryvnia, Ukraine's heavily devalued currency, will keep losing its value. The National Bank expects this year's inflation to exceed 17 percent.

Ukraine has a pitiful track record of tackling inflation. Hyperinflation destroyed the kupon, a currency that country had in 1992-1996, prior to introducing the hryvnia.

Lack of understanding of the macroeconomic issues by the members of parliament that they showed during Gontareva's Jan. 16 visit to the Verkhovna Rada has become the subject to jokes of financial analysts. Executing the money printing policy in a country whose parliament tends to be populist when it comes to serious financial discussion is questionable.

"Yes, emission (printing the money) should take place," said First Deputy Finance Minister Igor Umansky in an interview with LB website. "But money should come to the economy not through banks, but through the state budget."

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