The National Bank of Ukraine (NBU) plans to reach the medium outlook inflation target (5% in 2019) by reviewing the key interest rate.

This is stipulated in proposals on the key elements of monetary and credit policy for 2016-2020 approved by NBU decree No. 541 of August 18, 2015 which has been posted on the regulator's website on Thursday.

The central bank said that depending on the surplus or deficit of the banking system, the key rate will be the rate for liquidity provision transactions (for example, refinancing rate) or the rate on sterilization transactions (for example, holding tenders to place NBU's deposit certificates).

The transactions will be carried out at a price set in advance.

The key interest rate will be expanded by the range of credit and overnight deposit rates to manage short-term rates on the interbank market by restricting its fluctuations.

According to the proposals, additional instruments in achieving the targeted inflation figures include fine tuning transactions and structural liquidity regulation transactions: refinancing tenders and tenders to place NBU's deposit certificates with terms that differ from key liquidity regulation transactions, repo transactions, currency swaps, and sales and purchases of government securities.

According to the proposals, obligatory reservation will be used to strengthen the influence of changes of the key interest rate on rates on the interbank market.

The regulator said that it may stop using this instrument to ensure transmission of monetary and credit policy.

The NBU would also carry out interventions on the currency market to boost forex reserves, smoothen extra fluctuations of the exchange rate and to support the key interest rate.

No quantitative indicators would be set for the exchange rate.

The medium outlook inflation target is set at 5% for the annual change of the consumer price index.

The regulator said that the target would be reached gradually, with a decline of 5 percentage points every year: December 2016 – 12% (+/- 3 percentage points), December 2017 – 8% (+/- 2 percentage points), December 2018 - 6% (+/- 2 percentage points), December 2019 and so on - 5% (+/- 1 percentage point).