Ukraine cuts interest rates to all-time low after signing agreement with IMF


KIEV (Reuters) – Ukraine’s central bank cut its main interest rate for the eighth consecutive time on Thursday after President Volodymyr Zelenskiy’s government secured a $ 5 billion deal from the International Monetary Fund to exit the country of the recession.

The drop from 8% to 6% brings the benchmark rate back to its lowest level since Ukraine’s independence from the Soviet Union in 1991.

Prime Minister Denys Shmygal welcomed the decision, saying it was “a good signal for businesses, for banks, that loans should be restored”.

“It is highly likely that consumer and investment demand will remain depressed longer than expected in April,” the central bank said in a statement.

IMF loans and monetary easing are aimed at supporting the economy, which could shrink as much as 12% in the second quarter of this year as a nationwide coronavirus lockdown dampened business activity.

The agreement with the IMF also paved the way for European Union and World Bank aid to Ukraine, one of the poorest countries in Europe.

The rate cut was sharper than expected. Six of 15 Ukrainian analysts polled by Reuters ahead of the decision expected the rate to be cut to 7.0%; five others saw it at 7.5%; and four contributors predict 6.5%.

The bank has cut its key rate three times since the start of the year, when it stood at 13.5%.

But further cuts are unlikely to be so quick.

“The potential to cut the rate at a high rate of 2 to 2.5 percentage points per session …

Prior to easing monetary policy last July, the central bank had gradually tightened monetary policy over the previous five years to bring inflation down to double-digit levels seen in the unrest following the Maidan protests in 2014, the annexation of Crimea by Russia and the military conflict in eastern Ukraine.

Inflation was 1.7% in May, below the central bank’s target range of around 5%.

A few weeks ago, the government began lifting restrictions on coronaviruses for business activities imposed in March. Among the recent measures, it allowed the resumption of rail operations from June 1, internal flights became possible from June 5 and international flights will start from June 15.

Ukraine has 29,070 confirmed cases of the coronavirus, including 854 deaths.

Writing by Matthias Williams and Pavel Polityuk; Editing by Frances Kerry and Hugh Lawson


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