Ukraine lowers interest rate for third time this year

UKRAINE’S central bank lowered its main interest rate for the third time in three months yesterday and promised more easing to come in its winning fight against runaway inflation.

The step follows the bank’s confirmation that the war-scarred nation had pulled out of a two-year recession and saw its economy expand in the three months ending in March at an annual pace of 0.1 per cent.

The discount rate’s reduction to 16.5 from 18 per cent followed a one per centage point cut in May and a three percentage point drop in April.

“A further easing of the monetary policy as a whole corresponds to our inflation targets for 2016 and 2017,” National Bank of Ukraine (NBU) chief Valeriya Gontareva told reporters.

She stressed “improving inflation expectations and a stable situation on the currency market” as positive signs for the cash-starved state.

Ukraine’s inflation rate hit nearly 50 per cent at one point last year while the currency has lost about two-thirds of its value since Kiev’s conflict with Moscow over Crimea and the separatist east began in early 2014.

The former Soviet republic saw its prices rise by 43.3 per cent last year and its ties with foreign lenders frozen by parliament’s obstruction of belt-tightening measures prescribed by the International Monetary Fund.

But lawmakers spent recent weeks approving a raft of IMF-backed meas- ures and also confirmed a new government in April that ended months of political gridlock.

Consumer prices rose by just 7.5 per cent in May compared to the same month last year – a slowdown that keeps Ukraine on track to reach its headline inflation rate target of 12 per cent by the end of the year.

The central bank expects prices to rise by just eight per cent in 2017.

“Favourable foreign economic conditions resulted in increased export earnings and an improved foreign exchange market situation,” the central bank added in a statement.

“Under these conditions, the NBU, using a flexible exchange rate, purchased foreign currency to replenish international reserves, leaving an opportunity for moderate exchange rate strengthening caused by fundamental factors.”

But not everything on the economic front remains as rosy as Kiev would like.

Prime Minister Volodymyr Groysman announced on Tuesday that Ukraine this year would only receive $1.7 billion (1.5 billion euros) from the IMF.

That money was due to be issued last year under the terms of a $17.5-billion bailout the Fund approved in 2015 to help Ukraine’s leaders along on their westward path.

Ukraine has only received $6.7 billion of the package and no new disbursements since August 2015 due to Kiev’s resistance to the tough and unpopular measures prescribed under the IMF’s program.