Ukraine Delivers Deeper-Than-Expected Cut in Interest Rates
Ukraine to Push On With Interest-Rate Cuts: Decision Day Guide
(Bloomberg) --
Ukraine forged ahead with interest-rate cuts, delivering a bigger-than-expected reduction after inflation slowed and a London court provided good news on the fate of the country’s biggest lender.
The future of Privatbank, nationalized in 2016 amid a purge of the financial system, is key to Ukraine’s hopes of securing billions of dollars of international aid. The bank’s new management is fighting a legal challenge from its billionaire former owners, one of whom was once a business partner of President Volodymyr Zelenskiy.
A U.K. court handed the tycoons a setback this month, creating some breathing space for the central bank, which lowered its benchmark rate to 15.5% from 16.5% on Thursday. The majority of economists in a Bloomberg survey had predicted a cut to 16%.
“A more rapid decline in underlying inflationary pressure than anticipated coupled with no change in the balance of risks have made it possible to ease monetary policy somewhat more quickly this year than envisaged,” the bank said in a statement.
Ukraine still has eastern Europe’s highest benchmark interest rate, with the region’s major central banks mostly on hold as the impact of looser monetary policy globally outweighs price pressures at home.
For Ukraine, domestic issues are the driver and the fight for Privatbank isn’t over. Multiple court proceedings are underway in Kyiv and may drag on for months. That could complicate negotiations with the IMF over a three-year loan program of about $5 billion.
Central bank Governor Yakiv Smoliy said Thursday that Ukraine must recoup the more than $5 billion it injected into Privatbank. An IMF mission will visit “soon,” he said, with no date set as yet.
The inflation picture is more straightforward. Consumer-price growth eased the most in more than a year in September, slowing for a second month as the hryvnia remains the world’s best-performing currency of 2019. In October, it will dip below 7% for the first time since 2016, according to Smoliy.
The central bank maintained its full-year inflation forecast of 6.3%, as well as its 5% projection for 2020. It sees the economy expanding 3.5% this year and next.
To contact the reporters on this story: Kateryna Choursina in Kyiv at kchoursina@bloomberg.net;Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net
To contact the editors responsible for this story: Andrew Langley at alangley1@bloomberg.net, ;Balazs Penz at bpenz@bloomberg.net, Tony Halpin
©2019 Bloomberg L.P.