Ukraine central bank sees basis for further interest rate reduction

The National Bank of Ukraine (NBU) has observed positive signals for inflation stabilization and resumed IMF cooperation, which sets the grounds for a further discount rate reduction, announced on May 19 NBU Deputy Governor Dmytro Sologub, as reported by Interfax-Ukraine. Discount rate reduction “to a large extent depends upon the situation with inflation,” he said. “We see the trend is rather positive, as well as the situation with the IMF. The discount rate is becoming the key instrument for managing inflation, as well as for stimulating growth.” Ukraine is in the rate’s cut cycle, which also offers the basis for further rate reduction, he said. However, he did not specify when that might happen.

On April 21, the NBU board of directors ruled to reduce its key policy rate to 19% from 22%, which was the first rate reduction since September 2015. The next meeting to consider the key rate revision is schedule for May 26.

Alexander Paraschiy: We have observed positive tendencies in the economy, which include a stabilized hryvnia, reviving real sector and slowing inflation. The political situation has also stabilized. This has apparently prompted the NBU to talk about discount rate reduction in what should make loans cheaper and should stimulate stronger economic growth. Still, it’s not clear when it will be appropriate to continue cutting rates. Very likely, the NBU will be interested to learn more about the effect from the April rate cut before a stronger interest rate reduction. We see it as less than 50 percent likely that the NBU board will cut its key rate at its next meeting on May 26. At the same time, it’s highly likely that the decline will happen following the next NBU meeting in late June or early July.