Ukraine likely to keep key interest rate on hold at 6%: Reuters poll

KYIV (Reuters) - Ukraine’s central bank will keep its main interest rate unchanged at 6% for the third monetary policy meeting in a row this week, wary of delays in foreign aid loans and an expected inflation jump, a Reuters poll forecast on Wednesday.

The central bank has kept rates at their lowest level since Ukraine’s independence in 1991, aiming to revive an economy battered by the coronavirus pandemic. Policymakers will meet to review rates on Oct. 22.

Thirteen of 15 Ukrainian analysts polled by Reuters see the benchmark interest rate unchanged, while two contributors believe it would be cut to 5.5%.

“We still believe that the central bank will take a ‘wait-and-see’ approach and keep the rate on hold at 6%,” analysts from the ICU brokerage said in written comments.

Ukraine secured a $5 billion loan deal with the IMF in June and expected to receive about $700 million of that money into the state budget in September and a similar amount by the end of the year.

But the IMF has postponed its mission to Kyiv while waiting for clear signals that the authorities will continue anti-corruption measures, pursue reforms and keep the central bank independent.

The World Bank and the European Union have also delayed disbursing more funds.

Inflation has slowed to low single-digits, but is expected to accelerate to 5.2% by the end of the year from 2.3% in September, according to Dmytro Boyarchuk from the think-tank CASE Ukraine.

“We need to prepare for a significant acceleration of the inflation index at the end of the year. This suggests that there is no reason to reduce the rate,” Boyarchuk said.

He expects inflation to pick up in line with rising grain prices, higher utility bills during the winter heating season and the rising cost of imported goods due to the weakening of the hryvnia currency.

Oleksandr Podnebennyi, from OTP Bank Ukraine, believes the rate will remain unchanged until next year.

Alexander Paraschiy, from the brokerage Concorde Capital, expects a rate cut to 5.5%.

He said this step would decrease yields of the central bank deposit certificates and redirect commercial banks’ interest to government bonds, helping finance the 2020 budget deficit in the absence of loans from the IMF and other international creditors.

Editing by Matthias Williams and Alex Richardson