MONETARY POLICY DURING CRISES: REFORMS, CONSUMER EXPECTATIONS AND THE ROLE OF THE TRANSMISSION MECHANISM IN UKRAINE'S RETURN TO INFLATION TARGETING

Abstract

This article examines the trajectory of Ukraine’s monetary policy evolution, analyzing the effectiveness of institutional reforms implemented since 2014 and their role in strengthening the transmission mechanism. The study examines the transition from exchange rate targeting to inflation targeting in 2016, as well as the return to exchange rate fixing during wartime, highlighting the problems associated with large-scale foreign exchange interventions, disruptions in transmission channels, and changing consumer expectations. Particular attention is paid to vulnerabilities, including increased demand for foreign exchange and the imbalance between imports and exports, which prompt the NBU to engage in excessive foreign exchange interventions. The war fundamentally changed Ukraine’s economic reality, forcing the NBU to take extraordinary measures to stabilize the financial system. These measures have become necessary for short-term survival, but are dangerous in the long term. The challenge is to ensure that the progress already made in monetary policy is renewed, which is what makes the return to inflation targeting so important, as emphasized by the National Bank of Ukraine. The study outlines and deduces key steps, the implementation of which will ensure the success of such a return. The study takes into account the lessons of the key reforms of 2014-2015 in changing monetary policy, proposing to understand how institutional resilience and proactive policy adaptation can accelerate Ukraine’s post-war monetary recovery. Such a transition will require not only technical adjustments, but also a new wave of improved communication strategies for working with the population, consolidating consumer expectations; making fiscal dominance impossible; restoring a full-fledged transmission mechanism. Achieving national prosperity in Ukraine is closely linked to the successful reintegration of the inflation targeting regime. The framework will lay the foundation for long-term macroeconomic stability, an important prerequisite for broad-based growth and public well-being. Stable and predictable inflation creates a climate of confidence, encouraging investment and consumption. Over time, this creates a virtuous cycle in which sustained economic growth is accompanied by rising living standards. An inflation targeting regime will be a driving force for consistent and responsible monetary policy, opening the door to deeper international integration. In the future, the success of inflation targeting will be measured not only by low and stable inflation, but also by its ability to serve as the cornerstone of a resilient, dynamic economy that offers tangible improvements in the lives of citizens.