Central bank is likely to leave its main interest rate unchanged on June 6, following a delay to the disbursement of International Monetary Fund aid worth $1.3 billion, a monthly analyst poll showed.
Most of the analysts – 11 out of 17 polled by Reuters – expect the rate to remain at its current 17.5%. The other six foresaw a cut to 17%, Reuters said.
Ukraine hoped to secure IMF money in June under a $3.9-billion stand-by program approved last December. The funds were intended to help the country maintain stability through presidential and parliamentary elections and to service heavy debt payments in 2019.
But President Volodymyr Zelensky, who took power in May, dissolved parliament and called for an election on July 21 that was originally scheduled for October. The IMF payments will only resume once a new government is formed.
“Risks for financial stability have not eased enough to talk about the further cut of the rate in June,” said Taras Kotovych at Ukraine’s ICU brokerage.
Citing improved inflation expectations, the central bank had cut the key rate by 0.5% in April, the first reduction in the past two years. It had either increased the rate or kept it unchanged since mid-2017. Annual inflation slowed to 8.8% in April from 9.8% in December. Analysts expect May inflation to speed up slightly to 9.2%, according to their median forecast.
Central Bank Governor Yakiv Smolii said in April the bank was ready to continue monetary policy softening provided there was a strong disinflation trend and timely disbursements of IMF funds.
An IMF mission visiting Kyiv in May said it would continue discussions once parliament had appointed a new government after the election and that government’s policy intentions became clear.
“In this situation, the central bank will take a more conservative stance and refrain from changing the rate,” said Mykhaylo Demkiv, also from ICU.
The IMF loan delay may also postpone Ukraine’s plan to issue eurobonds in June. (UNIAN/Business World Magazine)