April 12, 2018 / 11:35 AM / 11 days ago

UPDATE 2-Ukraine central bank keeps rates on hold, warns it needs IMF funds

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By Natalia Zinets

KIEV, April 12 (Reuters) - Ukraine’s central bank left its main interest rate at 17 percent on Thursday, as expected, but warned that an improving outlook for inflation could be undermined if the International Monetary Fund delays in disbursing loans.

Over the past six months, the bank has kept monetary policy tight to curb stubbornly high inflation linked to higher food and oil prices and to government-backed increases in workers’ wages and pensions.

The latest rate decision was in line with the consensus of a Reuters poll of analysts and follows a fall in annual consumer price increases to 13.2 percent in March from 14 percent in February.

“After four hikes of the key policy rate, the current monetary conditions are sufficiently tight to bring inflation back to its mid-term target,” the central bank said in a statement.

The bank kept its inflation forecast for 2018 unchanged at 8.9 percent and raised its reserves forecast to $21.6 billion from $20.5 billion.

But it warned that all its expectations hinged on Ukraine sticking with its $17.5 billion programme with the IMF, which has expressed concern about perceived backtracking on reforms and delays in implementing policies to tackle corruption.

“The main risk to the said macroeconomic forecast is that there may be no progress in implementing structural reforms, which is required for maintaining macroeconomic stability and receiving loans from the IMF,” the central bank said.

Deputy Governor Dmytro Sologub said the bank expected Ukraine to get the next tranche of loans in the third quarter, not in the first half, when it was originally expected.

Ukraine has received $8.4 billion so far from the IMF, helping it recover from a two-year recession following the 2014 annexation of Crimea by Russia and the outbreak of a Russian-backed insurgency in its industrial east.

But the need for further financing is acute as Ukraine faces peak payments on its foreign currency-denominated debt in 2018-2020.

“Any delays in taking the required steps to revive cooperation with Ukraine’s official lenders narrows the country’s opportunities to receive financing required for making public debt repayments,” the central bank said.

There is a shrinking window for Ukraine to pass IMF-backed reforms ahead of presidential and parliamentary elections that will take place in 2019 at the latest. The current IMF programme also expires in March next year. (Writing by Alessandra Prentice; editing by Matthias Williams, Larry King)

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