Ukraine Unexpectedly Cuts Key Rate to 18% as Inflation Eases

  • Central bank says weak demand, hryvnia rally taming prices
  • Monetary-policy makers say inflation goals on track to be met

Ukraine’s central bank surprised economists by cutting its benchmark interest rate for a second month after inflation plunged.

The key policy rate was trimmed to 18 percent from 19 percent, the National Bank of Ukraine said Thursday. One of eight analysts in a Bloomberg survey predicted the move, while one saw a reduction to 16 percent and the other six projected no change.

“The rate cut was possible because of the stable trend of slowing consumer inflation, which corresponds to the bank’s 2016 and 2017 targets,” the central bank said in a statement. “The disinflation trend was defined by weak domestic consumer demand, moderate monetary policy and the strengthening of the hryvnia in recent months.”

Monetary-policy makers are lowering borrowing costs as Ukraine’s economy heals and after an 8.7 percent rally in the national currency during the past three months. The central bank is also predicting disbursements from a $17.5 billion International Monetary Fund bailout that’s been held up since October will resume soon. The Washington-based lender has said the next funds may be approved in July.

Consumer prices rose 9.8 percent from a year earlier in April, slowing from 20.9 percent the previous month. The benchmark may be reduced to 15 percent by year-end, according to Kiev-based Investment Capital Ukraine.

“Should price stability risks continue decline and should inflation slow, the central bank is prepared to further soften monetary policy to support the revival of economic activity,” Governor Valeriya Gontareva told reporters Thursday.

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