{"id":158354,"date":"2019-10-24T13:42:12","date_gmt":"2019-10-24T17:42:12","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=158354"},"modified":"2019-10-24T13:22:03","modified_gmt":"2019-10-24T17:22:03","slug":"ukraine-cuts-rate-4th-time-sees-easing-through-2021","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/10\/ukraine-cuts-rate-4th-time-sees-easing-through-2021\/","title":{"rendered":"Ukraine cuts rate 4th time, sees easing through 2021"},"content":{"rendered":"
October 24, 2019<\/div>
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By CentralBankNews.info<\/u><\/a><\/p>\n

Ukraine’s central bank cut its key policy rate by another 100 basis points to 15.50 percent and said it expects to continue to lower the rate toward 8.0 percent by the end of 2021, provided inflation continues to decline toward its target of 5.0 percent.<\/p>\n

The National Bank of Ukraine (NUB) has now cut its rate by a total of 250 basis points this year following cuts in April, July, September and today.
\nThe largest rate cuts are expected to take place next year as inflation returns toward the target range and inflation expectations improve but NBU said the path toward a 8.0 percent rate could also be slower if risks to inflation emerge, or rates could be cut faster if inflation falls faster.<\/p>\n

“These cuts will greatly depend on whether or not key internal reforms are sped up,” NBU said, pointing to reforms in a memorandum of understanding between the government and the central bank, along with judicial reforms that establish the rule of law in the country.<\/p>\n

Inflation in September dropped to 7.5 percent from 8.8 percent in August is continuing to slow in October, NBU said.<\/p>\n

The central bank is still expecting inflation to fall to 6.3 percent by the end of 2019, meeting the target range in early 2020 and the target at the end of 2020.<\/p>

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NBU is in the first stages of implementing inflation targeting, which is characterized by disinflation toward its optimal target, and its 2019 policy guidelines set out a quarterly trajectory for inflation to reach 5.25 percent, plus\/minus 2 percentage points by September, and then 5.0 percent, plus\/minus 1 percentage point starting in December.<\/p>\n

Despite the slowing global economy, demand in Ukraine has been improving along with consumer sentiment and higher agricultural production, with growth accelerating to 4.6 percent in the second quarter, up from 2.5 percent in the first quarter.<\/p>\n

NBU expects the economy to continue to expand and forecast growth will average 3.5 percent this year and in 2020, and 4.0 percent in 2021.
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The National Bank of Ukraine released the following press release:<\/p>\n

“The Board of the National Bank of Ukraine has taken a decision to cut its key policy rate to 15.5% per annum effective 25\u00a0October\u00a02019. The NBU continues the cycle of monetary policy easing as inflation is firmly declining towards the target of 5%.<\/em><\/strong><\/div>\n
In September 2019, consumer inflation declined to 7.5%\u00a0yoy, below the forecast published in the July Inflation Report.<\/strong>\u00a0Inflation continued to slow in October according to the NBU\u2019s preliminary estimates.<\/div>\n
The steady disinflation has been driven by a gradual easing of underlying pressures on prices, reflected in a rapid slowdown of core inflation. The tight monetary policy was one of the reasons behind the strengthening of the hryvnia and improvement in inflation expectations. That has a major impact on prices, surpassing the effect of factors that push prices upwards, particularly the effect of the sustained consumer demand.<\/div>\n
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Inflation will continue to decline towards the target of 5%<\/strong><\/div>\n<\/div>\n
Same as before, inflation is projected to decline to 6.3% as of the end of 2019, meet the target range in early 2020, and reach the medium-term target of 5% at the end of 2020.<\/div>\n
By the end of 2019, core inflation will slow more than expected, while fuel prices will remain below last year\u2019s levels due to the stronger hryvnia.\u00a0 At the same time, supply of vegetables affected by unfavorable weather will put an upward pressure on prices. Therefore, considering the offsetting effect of these factors, the NBU maintains its inflation forecast for the end of 2019.<\/div>\n
Same as this year, the tight monetary stance will continue to push inflation lower, to 5% in 2020\u20132021. Despite the gradual reduction in the key policy rate, its real value will remain high on the back of improved inflation expectations. Relatively high real interest rates will keep hryvnia financial instruments attractive for investors and thus influence the exchange rate of the national currency.<\/div>\n
As a result, the more favorable FX market will neutralize the pressure domestic demand has on prices, which will be somewhat higher according to the new forecast.<\/div>\n
Other factors behind the gradual disinflation will include:<\/div>\n