KIEV (Reuters) – An expected new loan from the International Monetary Fund, slow inflation and a looming recession are likely to prompt Ukraine’s central bank to cut its policy rate from the current 8% next week to help the economy recover recover after the coronavirus lockdown, a Reuters monthly poll released Thursday.
The IMF said its board would consider Ukraine’s request for a $ 5 billion standby deal on June 9. Kiev hopes that the first installment worth $ 1.9 billion will be paid the next day and will be used to finance the state budget deficit.
Ukraine’s central bank plans to revise its key rate on June 11.
Six of 15 Ukrainian analysts, polled by Reuters, expect the rate to be cut to 7.0%; five others see it at 7.5%; and four contributors predict 6.5%.
“The rate will be reduced as the central bank now tries to coordinate its policy with the government, and there is a huge demand from the latter as the rate cut will make lending cheaper in the domestic market,” said Konstantin Fastovets of the brokerage house. Adamant Capital, which expects a drop of 1 percentage point.
He added that authorities are struggling to support the economy, which could contract 15% in the second quarter.
According to the poll’s median forecast, Ukraine’s domestic product will decline by 10.2% in April-June. The State Statistics Service reported a 1.5% drop in the first quarter.
Alfa-Bank Ukraine’s Oleksiy Blinov said the bank had the possibility of a larger cut as inflation continued to slow well below its 5% target.
Analysts expect inflation in May to slow to 1.9% year-on-year from 2.1% in April.
“In this regard, in addition to the favorable situation in the foreign exchange market and the need to stimulate economic recovery after the removal of quarantine restrictions, we expect a reduction … of an additional 150 points to 6.5%”, Blinov said.
The bank has cut its rate three times since the start of the year, when it stood at 13.5%.
A few weeks ago, the government began lifting restrictions on business activity, imposed in March. One of the recent measures allowing the resumption of rail operations from June 1, domestic flights will be possible from June 5, international flights from June 15.
Ukraine reports 25,411 cases of the coronavirus, including 747 deaths, as of June 4.
Reporting by Natalia Zinets; Editing by Chizu Nomiyama