January 30, 2020 / 12:23 PM / a month ago

UPDATE 2-Ukraine central bank cuts key rate to lowest since 2014

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By Natalia Zinets

KIEV, Jan 30 (Reuters) - Falling inflation prompted Ukraine’s central bank to slash its main interest rate to 11% from 13.5% on Thursday, its lowest level since 2014, and predict the rate would drop to 7% by the end of the year.

Interest rates have been in double digits since Ukraine plunged into turmoil following Russia’s annexation of Crimea in 2014, but they were cut five times in 2019 as inflation eased back down from crisis levels.

Thursday’s cut by the National Bank of Ukraine (NBU) was even more aggressive than what was predicted by most analysts in a Reuters poll before the decision.

Tight monetary policy had pushed inflation down from double digits to 9.8% in 2018 and 4.1% in 2019, a six-year-low. The decline prompted calls from the government for rate cuts to boost economic growth and make loans cheaper for industry, which providess more than a quarter of Ukraine’s economic output.

“The NBU continues to ease its monetary policy with the aim of maintaining inflation at the target level of 5% and supporting steady economic growth,” the central bank said in a statement.

“In light of the more rapid improvement in Ukraine’s macroeconomic conditions, the NBU expects to cut the key policy rate to 7% by the end of 2020,” it added.

Last year, the central bank cut the rate five times, from 18.0% to 13.5%. It expects to cut rates more quickly in the first half of the year, though the pace could slow if inflation risks materialise, it said.

The central bank expects the economy to grow by 3.5% in 2020, slightly faster than the 3.3% it sees for 2019, provided Ukraine can get new loans from the International Monetary Fund this year.

Ukraine’s government secured provisional agreement with the IMF for a new loan deal in December, though disbursement is conditional on the government’s performance on reforms.

The central bank expects the IMF agreement to be completed in the coming months. Speaking to reporters after the rate announcement, Deputy Governor Dmytro Sologub said he expected the IMF to disburse $1.7 billion in loans this year. (Writing by Matthias Williams; editing by Larry King)

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