January 29, 2020 / 11:17 AM / 21 days ago

POLL-Ukraine central bank set to cut key rate sharply on Jan 30

* Interest rate poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=UACBIR%3DECI

* CPI poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=UACPIY%3DECI

KIEV, Jan 29 (Reuters) - Significantly slower inflation will prompt Ukraine’s central bank to cut its key interest rate sharply from the current level of 13.5% to help industry recover and maintain economic growth, a Reuters poll predicted on Wednesday.

The median forecast of 14 Ukrainian analysts suggests that the central bank will reduce the rate by two percentage points to 11.5% on Thursday. Inflation eased to 4.1% in December, below the central bank’s target.

“The dynamics of consumer prices are favourable for lowering the rate; moreover, in January, 12-month inflation may fall below 3.5%,” said Artem Shcherbyna from brokerage Capital Times.

Seven analysts, including Shcherbyna, expect the interest rate to be cut to 11.5%; three predict 11.0%; two forecast 12.0% and two expect 12.5%.

Tight monetary policy has gradually pushed inflation down from double digits to 9.8% in 2018 and 4.1% in 2019.

But analysts say interest rates need to be lowered in order to make loans more affordable for the industrial sector, which generates more than a quarter of Ukraine’s economic output.

Last year the central bank cut the rate five times, from 18.0% to 13.5%.

The central bank will continue softening its monetary policy to prevent further negative developments in the economy, said Sergiy Drobot from Pivdennyi bank, who forecasts a rate cut to 11.5%.

Ukraine’s industrial output shrank by 1.8% in 2019 after sluggish growth of 1.6% in 2018 and 0.4% in 2017.

A record grain harvest and a hike in the mininum wage bolstered economic growth in 2018-2019. (Reporting by Natalia Zinets; editing by Matthias Williams and Pravin Char)

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