The Council of the National Bank of Ukraine (NBU) after an extraordinary meeting held on January 17 devoted the current state of the currency market has recommended the government and NBU Board to revise the budget expansion practice at the end of the year. It could have large negative macroeconomic consequences, hinder conducting the monetary policy and result in the loss of public finances, Head of the NBU Council Bohdan Danylyshyn wrote on his Facebook page.

"The government also should defer to our recommendations. I am sure that their implementation would help to restore trust to banks, return of deposits to the banking sector, stir up crediting and create the solid basis for reviving the national economy," Danylyshyn said.

According to the report, NBU Council members have come to the conclusion that the increase in the hryvnia devaluation seen in the last months of last year is temporary. It is linked to the influence of the situation and seasonal factors: expansion of budget expenses (the increase in hryvnia supply) in the last weeks of December; inciting expectations regarding the nationalization of one of the largest systemic banks of Ukraine; the decline of currency supply from agricultural companies; and the increase in market players' demand on foreign currency caused by the needs of companies to pay on credits pegged to foreign currency at the end of the year.

"There are no fundamental factors for devaluation processes now. The foreign economic environment is favorable in general. The state of the current account of the balance of payment has improved. Revenue from grain exports continued arriving and the favorable situation for Ukrainian exporters on the global ferrous metal and iron ore markets remained," he said.

According to the NBU Council, the central bank quickly reacted to misbalances on the currency market using interventions and retaining the hryvnia exchange rate flexibility.

The NBU Council said that current hryvnia exchange fluctuations would have a small impact on the development of inflation and the implementation of the tasks outlined in the key principles of the monetary and credit policy for 2017 and medium-term outlook.

The NBU Council also recommended the central bank to consider the possibility of increasing the term for obligatory sale of revenue in foreign currency by authorized banks after the funds arrive to the clearing account.

The council also recommended retaining further expansion of hryvnia supply if volatility of the exchange rate expands, including via temporary suspension of transactions to buy Ukrainian government bonds to the portfolio of the NBU to avoid speculative demand on foreign currency.

The council also proposed to consider amendments to the strategy of development of state-run banks, taking into account the large increase of the share of these banks in the country's banking sector.