KIEV (Reuters) - Ukraine’s central bank cut its main interest rate for the eighth time in a row on Thursday after President Volodymyr Zelenskiy’s government secured a $5 billion deal from the International Monetary Fund to tide over the country through recession.
The cut to 6% from 8% takes the benchmark rate down to its lowest level since Ukraine’s independence from the Soviet Union in 1991.
Prime Minister Denys Shmygal welcomed the move, saying that this was “a good signal for business, for banks, that lending should be restored”.
“It is highly likely that consumer and investment demand will remain depressed longer than expected in April,” the central bank said in a statement.
The IMF loans and monetary easing are aimed at supporting the economy, which could shrink by as much as 12% in the second quarter of this year as a nationwide coronavirus lockdown throttled business activity.
The IMF agreement has also paved the way for aid from the European Union and the World Bank to Ukraine, one of Europe’s poorest countries.
The rate cut was sharper than expected. Six of 15 Ukrainian analysts, polled by Reuters before the decision, expected the rate to be cut to 7.0%; five others saw it at 7.5%; and four contributors forecast 6.5%.
The bank has reduced its main rate three times since the start of the year, when it stood at 13.5%.
But further cuts are unlikely to be so quick.
“The potential for lowering the rate at a high pace of 2-2.5 percentage points per session... has actually been exhausted,” Central Bank Governor Yakiv Smoliy told an online briefing after the rate decision, which takes effect on Friday.
Before easing its monetary policy last July, the central bank had gradually tightened monetary policy in the previous five years to bring inflation down from the double digit levels seen in the turmoil that followed the 2014 Maidan protests, Russia’s annexation of Crimea and military conflict in eastern Ukraine.
Inflation was at 1.7% in May, lower than the central bank’s target range of around 5%.
A few weeks ago the government started lifting the coronavirus restrictions for business activity that were imposed in March. Among recent steps it allowed railway operations to resume from June 1, internal flights became possible from June 5 and international flights will start from June 15.
Ukraine has 29,070 confirmed coronavirus cases, including 854 deaths.
Writing by Matthias Williams and Pavel Polityuk; Editing by Frances Kerry and Hugh Lawson