Ukraine Vows More Rate Cuts After Second Straight Reduction

  • Central bank's discount rate lowered to 22% from 27%
  • Bank cites `gradual decline in risks to price stability'

Ukraine’s central bank promised more interest-rate reductions after lowering borrowing costs for a second month as the economy gradually recovers from an armed conflict and a currency devaluation.

"We have next year’s inflation forecast and if we meet it our rates will be cut significantly," bank Governor Valeriya Gontareva told reporters in Kiev Thursday. "The discount rate will reach a sufficiently low level."

The National Bank of Ukraine earlier in the day trimmed its benchmark to 22 percent from 27 percent, effective Sept. 25, citing “a gradual decline in risks to price stability." The recent slowdown in inflation will continue, Gontareva said.

Looser monetary policy reflects an easing in Ukraine’s economic and political crises after policy makers raised the benchmark to 30 percent to shield the hryvnia amid a recession and the war in the nation’s east. Parliament last week approved an accord to relieve Ukraine’s foreign-debt burden and the latest stab at a cease-fire in the Donbas region is taking hold. The economy, while healing, faces challenges: It will shrink 11.5 percent in 2015, the central bank predicts.

Tight Policy

The hryvnia, this year’s fifth-worst performer against the dollar among more than 140 currencies tracked by Bloomberg, has stabilized since a February low. It was 1.5 percent weaker at 21.525 versus the greenback at 6:54 p.m. in Kiev.

That’s helped bring inflation down to 53 percent from an April peak of almost 61 percent. The central bank sees consumer prices rising 12 percent next year.

The debt-restructuring deal should help relieve pressure on the hryvnia, with monetary policy set to be eased further, according to London-based Capital Economics.

"The central bank made it clear that it will continue to cut interest rates,"
Capital analyst William Jackson said in an e-mailed note. "But the context is that they are coming down from emergency levels and the fragile balance-of-payments position means policy will need to stay tight."

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