The National Bank of Ukraine (NBU), after suspending full-fledged inflation targeting at the onset of Russia's full-scale invasion in February 2022, has approved a flexible inflation targeting regime for the medium term to maintain price stability. The updated Key Principles of Monetary Policy were approved by the NBU Council on September 11 and published on Thursday.

"From now on, the Key Principles officially state that the NBU's monetary policy is aimed at bringing inflation to a target of 5% within a reasonable policy horizon, which will not exceed three years," the NBU said in a press release.

"De facto, the NBU has already transitioned to this regime in the first half of 2024, announcing its intentions to maintain moderate inflation rates in 2024 and return inflation to the 5% target in the coming years," the central bank added.

It recalled that the full-fledged inflation targeting regime, which was in place before the full-scale invasion, envisaged a timeline of 9-18 months to return inflation to the target.

The NBU noted that under the new regime, the timeframe for returning inflation to the target will be determined flexibly.

"It will consider the need to balance between supporting the economy's adaptation and recovery, while also keeping inflation expectations under control," stated the central bank.

The NBU intends to use flexible inflation targeting until the economy normalizes and a full-fledged inflation targeting regime with a floating exchange rate can be reinstated, the regulator said.

The central bank added that this decision followed a successful transition to a managed floating exchange rate and a strengthened role for the key policy rate, thanks to reduced economic uncertainty, modernization of the interest rate policy's operational design, and similar regulatory measures.