October 8, 2019 / 1:50 PM / 2 months ago

Analysts expect another Ukraine rate cut in October: Reuters poll

KIEV (Reuters) - Slowing inflation and a desire to make bank loans more affordable to industry will prompt Ukraine’s central bank to cut its main interest rate for the fourth time this year, a Reuters poll of analysts showed on Tuesday.

Out of 15 respondents, 11 forecast a rate cut in October to 16.0% from 16.5%, two see a sharper cut to 15.5% while the other two expect no change.

An energy price drop and a strengthening hryvnia helped push inflation down to 8.8% in August from 9.6% at the end of 2018. Analysts, according to their median forecast, see September inflation at 7.8% and expect it to ease to 7.2% in December.

“We think that current tendencies ... create conditions for a further reduction in the central bank rate,” analysts at OTP Bank Ukraine said in written comments.

The central bank holds its next rate-setting meeting on October 24. It cut its key rate by 0.5 percentage point to 16.5% in September.

“Inflation is slowing down,” said Oleksiy Blinov from Alfa Bank Ukraine, who expects a one percentage point reduction to 15.5% in October.

“At the same time, many risks to the Ukrainian economy have not materialized. We believe that this set of factors gives the central bank reasons to speed up the reduction of its interest rate in October,” Blinov said.

Ukraine’s new government, appointed in August after snap parliamentary elections in July, wants to boost economic growth to 5-7% annually from 3% expected in 2019. But a key sector is showing a weak performance: industrial output in January-August stood just 0.1% above the level of the same period last year.

Prime Minister Oleksiy Honcharuk wants producers to have access to cheaper loans and signed an agreement with Central Bank Governor Yakiv Smoliy on achieving sustainable growth last week.

The central bank promised to reduce the interest rate gradually to 8% by 2021 if it reached its target to curb inflation to close to the level of 5% by the end of next year.

Mykhailo Rebryk of Raiffeisen Bank Aval expects the central bank to continue gradually cutting interest rates, but said this could change if Ukraine failed to secure a new loan program from the International Monetary Fund or if there were further signs of the central bank’s independence coming under threat.

The IMF in September stressed the need for the central bank to remain independent after two weeks of talks with the Ukrainian authorities on a new loan program that could be worth around $5-6 billion. In September the house of a former central bank governor was set ablaze, prompting the central bank to say its officials were being terrorized.

Editing by Matthias Williams and Giles Elgood

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