Prime rate cut by 0.5 ppt down to 16.5%; Premier demands cheaper loans

UKRAINE - In Brief 05 Sep 2019 by Dmytro Boyarchuk

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The NBU keeps easing course. The NBU Board approved one more policy rate cut by 0.5 ppt down to 16.5%. Slowing inflation, strong hryvnia, finalized election cycle with encouraging appointments to the Cabinet leave no reason to keep prime rate elevated. Still many experts were disappointed with modest rate decline. Prime-minister Honcharuk outlined cheaper loans for economy as one of his targets. Against this backdrop there is a growing expectation for the NBU to act more aggressively with rate cuts. However, the NBU Board decided to be conservative. To some extent this conservative decision might have been affected by recent attacks of some unknown persons on ex-Governor of the NBU Valeria Gontareva. Current management of the NBU is pretty much scared of growing influence of Ihor Kolomoyskiy. The oligarch does not have direct influence on the president. At least we could not spot this. But we see many ‘Kolomoyskiy people’ overtaking important positions. And recent incidents with Valeria Gontareva – she was hit by car in London and someone burned a car of her relatives in Kyiv – are widely linked to Kolomoyskiy efforts to leverage pressure both on Gontareva and current management of the NBU. The NBU even publicly condemned the events around Gontareva and named them pressure on the NBU officials. Next meeting of the NBU Board will be on October 24, 2019. We expect the NBU will keep cutting prime rate further on. Current trends are positive but the NBU will be watching closely events around Privatbank and Kolomoyskiy. We expect prime rate to go down to 16% in October.