Inflation Boon Clears Path for Ukraine to Push on With Rate Cuts

  • Central bank lowers policy rate for fourth month, to 15.5%
  • Consumer-price growth easing after spike from hryvnia plunge

A surprisingly low inflation reading allowed Ukraine’s central bank to trim borrowing costs for a fourth month, affirming its pledge to continue monetary easing if the price trend persists.

The bank lowered its key policy rate to 15.5 percent from 16.5 percent, according to a statement Thursday. Six of nine economists in a Bloomberg survey predicted a reduction to 16 percent, two saw a cut to 15.5 percent and one forecast an increase to 17 percent.

“June inflation slowed more than forecast,” the central bank said in its statement. “Should risks to price stability further abate, the national bank will continue to ease monetary policy. This will gradually help to cut credit costs and speed up economic growth.”

Ukraine is easing borrowing costs to help jump-start lending and ignite what’s so far been a muted recovery from 1 1/2 years of recession. Credit has been frozen since 2014, stymied by the nation’s second street revolution in a decade, Russia’s annexation of Crimea and a Kremlin-backed separatist insurgency.

Inflation was 6.9 percent from a year earlier in June, down from 7.5 percent in May and as high as 60.9 percent last year. The hryvnia, which was rocked by political uncertainty at the start of the year, has gained 1.6 percent in the past three months.

The central bank maintained its 12 percent inflation forecast for this year and affirmed its 1.1 percent projection for economic growth. It also relaxed some minor capital controls imposed in 2015.

Gross domestic product grew at a faster pace in the second quarter than the first, central bank Governor Valeriya Gontareva told reporters in Kiev, the capital. GDP edged up 0.1 percent from a year earlier between January and March, the first expansion in nine quarters on an annual basis.

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