July 22, 2020 / 12:10 PM / 19 days ago

Ukraine's central bank seen cutting rate from 6% under new governor: Reuters poll

KYIV (Reuters) - Ukraine’s central bank is likely to cut its key interest rate from 6% on Thursday at the first monetary policy meeting since a new governor took charge promising to make loans cheaper for businesses, a regular Reuters poll showed on Wednesday.

Seven out of 17 polled analysts expect a rate cut to 5.5%, while four others see it at 5.0%, one person forecast 5.25% and another 5.75%. Four analysts believe the rate will be unchanged.

Parliament appointed 47-year-old career banker Kyrylo Shevchenko last week after his predecessor Yakiv Smoliy quit in early July complaining of “systematic political pressure” on the central bank, rattling the market.

Smoliy had brought interest rates down to their lowest level since Ukraine’s independence in 1991. But critics said the pace of cuts was slow and damaged the economy as it hurtled towards recession caused by the coronavirus pandemic.

Smoliy rejected the accusations and said he was being pressured into taking bad economic decisions.

Shevchenko pledged to continue the central bank’s independent monetary policy but said rates should be lowered to make loans affordable and help restore economic growth.

Alexander Paraschiy from brokerage Concorde Capital said the central bank could cut the rate to 5.5% “to show political loyalty”, although there was little room for a decrease as inflation was likely to accelerate later in the year.

Sergiy Nikolaychuk from brokerage ICU said a 0.25 percentage point cut is most likely.

“Current conditions allow the central bank to cut interest rate in July – September, but the central bank should decide if it is worth cutting the rate now and then resort to a sharper increase of the rate in the future,” he said.

Analysts for Raiffeisen Bank Aval forecast a cut to 5.0% and said it would match trends elsewhere.

“Even taking into account the increase in inflationary expectations..., the key rate reduction to 5.0% corresponds to the levels of real key rates used in the countries of Central Europe,” they said.

Editing by Matthias Williams/Mark Heinrich

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