Ukraine’s New Central Bank Boss Touts Independence After Shakeup

The new head of Ukraine’s central bank rejected concerns that his arrival raises the risk of government meddling in monetary policy -- something that could jeopardize billions of dollars of foreign aid.

President Volodymyr Zelenskiy handpicked Kyrylo Shevchenko to take charge after sparring with the previous governor over what he deemed excessively high borrowing costs and a national currency whose strength was harming exporters. But Shevchenko, 47, has so far stood by the bank’s existing stances on those matters. Citing an admiration for Germany’s Bundesbank, he says he’s prepared to repel any pressure from outside.

“If you’re not ready to protect the central bank’s independence and policies, you shouldn’t take the post,” he said this week in an interview. “I thought about that before accepting the offer and realized I’m ready.”

Ukraine’s New Central Bank Boss Touts Independence After Shakeup

The abrupt departure of Shevchenko’s predecessor citing “systematic political pressure” stoked fears among investors of an attack on what’s become one of Ukraine’s most respected institutions since a pro-Western revolution in 2014. Pressure on central bankers around the world has risen in recent years, from Washington to Ankara. Signs of independence being eroded in Ukraine would risk halting a $5 billion International Monetary Fund loan program, as well as billions more in bilateral assistance that’s becoming ever-more crucial amid a resurgence in Covid-19 cases to now record daily highs.

In Ukraine, there’s been little sign of policy deviations since parliament approved Shevchenko in mid-July. The hryvnia has weakened only slightly against the dollar and the bank left interest rates unchanged at his first meeting in charge, even forecasting that the benchmark would probably remain at its current record-low through year-end.

Ukraine’s New Central Bank Boss Touts Independence After Shakeup

“I didn’t see a single call from the cabinet or personally from the president that the rate should be led to a certain level,” he said, also rebuffing calls from some lawmakers for the central bank to embark on quantitative easing.

Read more: Ukraine Appoints CEO of Local Lender to Lead Central Bank

The next monetary-policy meeting on Sept. 3 will be telling, being the first under a revamped board. Shevchenko -- who arrived from state-run Ukrgazbank, the country’s No. 4 lender -- has replaced two members of the six-strong panel that has the final say on interest rates, giving him and his appointees control of key decisions thanks to his extra vote.

He underlined that “so far we don’t expect surprises” on inflation for August, suggesting the bank’s outlook for stable interest rates could remain intact. But the bank’s course has become less clear to some market participants.

Dragon Capital, an investment bank in Kyiv, said last week that Shevchenko’s appointment may lead to “more dovish” monetary policy, including a possible half-point cut in rates next month.

Most investors are “still in wait-and-see mode”, said Brian Seel, an economist at Promeritum Investment Management LLP in London. While Shevchenko “says the ‘right’ things in his public statements, some of his early moves have raised eyebrows. He’s definitely going to need to earn the trust of markets.”

IMF ‘Obligatory’

One stance that will help in that regard is over Privatbank, Ukraine’s biggest lender, which was nationalized in 2016 after the discovery of a fraud exceeding $5 billion. Shevchenko said he’ll protect the takeover from legal challenge by the bank’s billionaire former owners, and backed efforts by the new management to recoup government bailout cash.

Shevchenko also called himself a “strong supporter” of continued cooperation with the IMF. In what he calls an optimistic scenario, Ukraine will get two more aid tranches of $1.4 billion each from the Washington-based lender this year.

“Ukraine’s relationship with the IMF is an indicator and impacts our relations with the European Commission, the World Bank and investors,” Shevchenko said. “Cooperation with the IMF “is an obligatory need.”

©2020 Bloomberg L.P.

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