March 5, 2020 / 4:38 PM / 25 days ago

Moderate Ukraine central bank rate cut expected next week: Reuters poll

KIEV (Reuters) - Lower-than-expected inflation and a slowing economy will prompt Ukraine’s central bank to cut its key rate for the sixth time in a row next week from the current level of 11%, a Reuters poll of analysts showed on Thursday.

The cut would not be as steep as January’s 2.5 percentage points due to a delay in the approval of a new loan program from the International Monetary Fund, the majority of the poll respondents said.

“The rate reduction will be more restrained (in coming months) if the situation with the spread of the coronavirus and the signing of a new program of cooperation with the IMF continues to develop according to a pessimistic scenario,” said analysts of Raiffeisen Bank Aval.

Nine out of 16 analysts forecast a rate cut to 10% at the next rate-setting meeting on March 12. Three see a reduction to 10.5%; one person expects 9.5% while the other three respondents believe the rate will remain unchanged.

Favorable inflation trends in Ukraine were among the reasons to expect further monetary easing, said Oleksiy Blinov from Alfa Bank Ukraine.

Inflation slowed to 3.1% in February year-on-year, according to the median forecast of the Reuters poll, moving further away from the central bank target of 5%. The State Statistics Service will publish its February data next week. In January inflation went down to 3.2% from 4.1% in December.

At the same time, Ukraine’s industrial output shrank 1.8% in 2019 after modest growth of 1.6% in 2018. The government has appealed to the central bank to speed up rate cuts to create conditions for cheaper loans for businesses.

“We see sufficient economic prerequisites for continuing the cycle of easing monetary policy, which will help support economic growth,” analysts of Raiffeisen Bank Aval, who expect a rate cut to 10% in March, said in written comments.

In January, the central bank promised to cut the rate to 7% by the end of the year provided that Ukraine’s cooperation with the IMF continues.

But parliament has not passed bills for land and banking reform that are needed for the final approval of a new $5.5 billion three-year loan program that Ukraine preliminarily agreed with the IMF.

President Volodymyr Zelenskiy ditched most of his government in a sweeping reshuffle this week. Zelenskiy and his new prime minister said cooperation with international partners would continue but analysts say it could delay a final IMF deal.

Editing by Matthias Williams

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