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Ukraine Refrains From Lowering Interest Rates Amid IMF Delays

IMF Delay Leaves Analysts Split on Ukraine's Interest-Rate Path

(Bloomberg) --

Ukraine’s central bank, which trimmed borrowing costs for the first time in almost two years at its last meeting, held off from a further cut amid hold-ups in financial aid.

The International Monetary Fund has said it will continue negotiations over assistance after snap parliamentary elections scheduled for July. With a government potentially only in place two months later, that means a delay to Ukraine’s current $3.9 billion program or potentially negotiations over a new loan.

With that in mind, the central bank left its benchmark rate at 17.5% on Thursday. Economists had been split between predicting a cut and a hold.

Ukraine Refrains From Lowering Interest Rates Amid IMF Delays

“The deliberations regarding further financial support from the IMF and, as a result, related financing have been put off until a new government is formed,” the bank said in a statement. “This is making the Ukrainian economy more vulnerable, and could increase financial-market volatility.”

‘Steadily Declining’

There are other reasons to exercise caution on reducing eastern Europe’s highest borrowing costs.

While the central bank said in April that inflation was “steadily declining,” data released later showed consumer-price growth unexpectedly accelerated that same month. The bank on Thursday called the uptick temporary and said it will fade in the second half of 2019.

The hryvnia has lost 2% against the dollar in the past month, making it the region’s worst performer.

Politics are also messy.

The plan to hold early parliamentary elections, which was put forward by President Volodymyr Zelenskiy, a TV comic who was sworn into office last month, is being challenged at the Constitutional Court. Even if it goes ahead, the vote could produce another fragmented legislature, despite Zelenskiy’s party leading polls. That would complicate fulfilling his anti-corruption agenda.

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

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Andrew Langley, Andrea Dudik

©2019 Bloomberg L.P.