The Central bank cuts policy rate by 0.5 ppt down to 12.5%

UKRAINE - In Brief 25 May 2017 by Dmytro Boyarchuk
The Central bank cut policy rate by extra 0.5ppt down to 12.5% today. Slowing inflation as well as steady strengthening of hryvnia stands behind this decision. In particular, in April CPI slowed down to 0.9% m/m (+12.2% y/y) vs. 1.8% m/m (+15.1% y/y) in the prior month. Hryvnia strengthened by 0.9% in May up to UAH 26.27/USD from UAH 26.52/USD at the start of the month. The Central bank one more time decided to signal that everything is good and businesses should be optimistic about Ukraine’s future. I agree that current tendencies are positive and we should expect further inflation slowdown till the yearend. However, hryvnia strengthening looks temporary amid sliding resource prices at the global market. Quite soon (September the latest) we will see return of depreciation tendency and the Central bank is perfectly aware of that risk. Against this backdrop it looks that room for further policy rate cut is quite narrow. In July (next meeting of the Board of Directors is scheduled for July 6th) I would expect one more policy rate cut (by 0.5 ppt down to 12%) and after that I think the Central bank will abstain from further rates reduction till FX tendencies of the fall will show up. Policy rateSource: the Central bank

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