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Ukraine Cuts Main Rate to 9-Year Low as Deflation Persists

June 7 (Bloomberg) -- Ukraine’s central bank cut its benchmark interest rate for the first time in more than a year, reducing it to the lowest since 2004 after the country recorded deflation for a seventh month.

The Natsionalnyi Bank Ukrainy in Kiev cut the discount rate by a half point to 7 percent, according to a statement on its website today. That’s the first change since March 2012. The central bank also lowered the refinancing rates by the same amount, to 8 percent when Treasury bills are used as collateral and the non-collateral rate to 10 percent.

Ukraine’s economy shrank 1.3 percent in the first quarter from a year earlier as demand waned for the country’s exports such as steel. Consumer prices fell 0.4 percent in May from a year earlier, extending a deflation that started in November.

“The rate cut will be positively accepted by the market and will boost lending,” central bank Governor Ihor Sorkin said in the statement. “Together with other measures taken by the central bank and the government, it will promote economic activity in the country and will help the stability of the banking system.”

The hryvnia advanced 0.2 percent to 8.1375 per dollar by 8:04 p.m. in Kiev, data compiled by Bloomberg shows. The yield on the country’s dollar bonds maturing in 2023 rose nine basis points to 8.51 percent.

Neighboring Belarus yesterday cut its benchmark interest rate, the world’s highest, to 23.5 percent in its fourth reduction this year and Serbia’s central bank unexpectedly lowered its benchmark to 11 percent.

Elsewhere in eastern Europe, Poland and Hungary cut rates to record lows in the past two weeks, while the Czech central bank is considering currency sales with rates at effectively zero.

-- Editors: Balazs Penz, James Kraus

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net;

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