Ukrainian Central Bank Chief Defends Reprimands Amid IMF Risks

(Bloomberg) -- Ukraine’s central bank governor defended this week’s official reprimands of two of his deputies amid continuing concern over the bank’s independence and a delay in the country’s next slice of aid from the International Monetary Fund.

Speaking to Bloomberg Television in London, Kyrylo Shevchenko said the action taken was due to the deputies violating the bank’s “one-voice policy” in commenting to local media outlets. He said the step doesn’t mean he wants the pair, the last remaining board members who worked under his predecessor, to leave their posts.

“Any central bank around the world has a communications policy, and that’s really sensitive and really important,” Shevchenko said Wednesday. “If different board members give different statements to the market, it can lead to a mess.”

Shevchenko was picked in July by President Volodymyr Zelenskiy, who while vowing to protect the bank from political meddling had joined other officials in saying interest rates were too high for borrowers and the exchange rate too strong for exporters. Investors and foreign donors are keeping a close eye on the bank, whose independence is crucial to the continued disbursement of Ukraine’s $5 billion loan from the IMF.

While Shevchenko has already replaced three of the six-member board that takes key decisions, there have been no obvious changes to monetary policy since his arrival. The hryvnia, however, began to weaken in mid-August and fell to its lowest level since 2018 against the dollar on Monday.

Shevchenko said Wednesday that the central bank is committed to a “floating-rate policy,” and that “we have no special goal for the exchange rate.” He said he sees no impact on inflation from the recent decline in the hryvnia, which was the world’s best performer in 2019.

The central bank is one of several issues for the IMF, whose schedule originally envisaged Ukraine’s next assistance arriving last month. Other concerns include the budget deficit, attacks on an agency created to tackle corruption and a cap on public-sector wages imposed to save money during the Covid-19 pandemic but that’s been criticized for harming corporate governance.

Read more: Ukrainian Central Bank Reprimands Prompt Independence Concerns

In a separate interview, Finance Minister Serhiy Marchenko said Ukraine still expects another tranche from the IMF this year and that it’s not a “good time” to tap international capital markets.

Ukraine is in “constant” negotiations with the Washington-based lender, “did our best” to show commitment, and to demonstrate a “strong and independent” central bank, he said.

After the personnel changes at the bank, however, Ukraine has to prove that independence all over again, according to Dmytro Sologub, one of the two deputies who were reprimanded.

“The central bank returned to the situation it was in in 2015, when it had to earn the IMF’s trust from scratch,” he said in a September interview with the Interfax news service.

Shevchenko pledged to fend off any political interference at the bank, saying the recent friction with his deputies is an internal matter that “definitely” won’t affect cooperation with the IMF.

“I’ll do my best to keep independence on the highest level possible,” he said.

©2020 Bloomberg L.P.