March 14, 2019 / 12:28 PM / 6 months ago

UPDATE 2-Ukraine keeps main rate unchanged before presidential election

(Adds quotes, details on IMF cooperation)

By Natalia Zinets

KIEV, March 14 (Reuters) - Ukraine left its main interest rate unchanged at 18 percent on Thursday to help bring inflation down to its target level, the central bank said, at the last monetary policy meeting before a presidential election on March 31.

“Although leaving the key policy rate unchanged, the NBU Board said that it could cut it in the future,” the National Bank of Ukraine said in a statement.

“How soon the NBU will adopt an easing cycle will depend on how steadily risks of inflation decrease and inflation expectations improve.”

The decision matched the expectations of analysts polled by Reuters, who thought the central bank would not risk cutting rates ahead of an unpredictable election even though inflation is expected to continue on a downward trend.

The central bank wants to bring inflation down further from high single digits to 5 percent by next year. It said inflationary risks remained, including from an increase in state welfare payments and subsidies.

Speaking at a press briefing, Central Bank Governor Yakiv Smoliy said Ukraine was on track to receive two loan tranches from the International Monetary Fund worth a combined $2.5 billion in May and November.

“We continue to work as usual and do not see any risks for continuing cooperation with the IMF and receiving the next tranches that are planned,” he said.

The presidential election has raised questions about Ukraine’s continued cooperation with the IMF, which has propped up the country through war and recession since 2014.

Former Prime Minister Yulia Tymoshenko, a main challenger to incumbent President Petro Poroshenko, has pledged to reverse IMF-backed gas price hikes if she wins the election, though she would like Ukraine to stay in the IMF programme.

Changes to an anti-corruption law introduced in 2015 as a condition of a previous IMF bailout also threaten to derail aid disbursements.

Ukraine has not lowered its key rate since May 2017, aiming to rein in inflation, which reached 16 percent in the middle of that year. The central bank targets inflation of 6.3 percent by the end of 2019, down from 9.8 percent in 2018.

The next monetary policy meeting will take place on April 25, after the second round of the presidential election.

“The tight monetary conditions continue to be an important prerequisite for gradually reducing inflation to the 5 percent target in 2020,” the central bank’s statement said. (Writing by Matthias Williams; Editing by Catherine Evans and Andrew Cawthorne)

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