July 18, 2019 / 11:37 AM / 4 months ago

UPDATE 2-Ukraine cuts rates on easing inflation, may cut more

* Inflation easing towards 5% target -c.bank

* Ukraine may get $2 bln IMF money this year -c.bank

* Ukraine may tap markets again this year

* C.bank publishes longer term rate forecasts

* (Adds quotes, details, background)

By Natalia Zinets

KIEV, July 18 (Reuters) - Ukraine’s central bank cut its main interest rate by half a percentage point to 17% on Thursday, citing a downward inflation trend which is expected to continue in coming months and could pave the way for further monetary easing.

Interest rates have been in double digits since the country plunged into turmoil following Russia’s annexation of Crimea in 2014 and the outbreak of a Moscow-backed separatist conflict in the eastern Donbass region of Ukraine.

But inflation dropped into single digits last year, giving the central bank more breathing space to cut rates, which it also did in April. Inflation stood at 9% in June and is seen at 6.3% by the end of this year.

Analysts had been divided on whether there would be a cut this time around, with the slowdown in inflation set against potential political uncertainty caused by a snap parliamentary election that takes place this Sunday.

The central bank “continues the cycle of monetary policy easing as inflation is declining towards the target of 5%,” it said in a statement.

Deputy Governor Dmytro Sologub said at a briefing afterwards that the central bank’s experts believe Ukraine could receive $2 billion from the International Monetary Fund (IMF) this year and a further $2 billion each in 2020 and 2021.

The IMF helped the economy recover from a sharp recession and currency crash following the outbreak of the conflict in eastern Ukraine.

President Volodymyr Zelenskiy’s party is on course to win Sunday’s election and expects to negotiate a new IMF deal after forming a government to replace an existing $3.9 billion standby aid agreement.

“We expect that this year it (the new programme) will begin and Ukraine will receive $2 billion under the new programme and $2 billion each in the following years,” Sologub said.

“If it is a little earlier - in the third quarter - or a little later, it will not have a significant influence on other macroeconomic parameters other than reserves. But the continuation of the (IMF) cooperation is important.” He also said the finance ministry could tap the market for additional borrowing of $1 billion this year, possibly in the autumn.

For the first time under the current leadership, the central bank also published longer term interest rate forecasts.

It said its baseline scenario would be for the main interest rate to fall to 8% in coming years. It saw the rate averaging 16% in the fourth quarter of this year and at 9.5% in the same period in 2020. (Writing by Matthias Williams; editing by Emelia Sithole-Matarise)

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