Top Stories
Top Stories
Wires

POLL-Analysts split on Ukraine interest rate decision in July

Natalia Zinets

* Interest rate poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=UACBIR%3DECI

* CPI poll data reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=UACPIY%3DE C I

KIEV, July 8 (Reuters) - The market is divided on whether Ukraine's central bank will cut its main interest rate in July, balancing a slowdown in inflation with the potential uncertainty caused by a snap parliamentary election, a Reuters survey showed on Monday.

The central bank plans to announce its decision on July 18.

President Volodymyr Zelenskiy, who took power in May, dissolved parliament and called for an election on July 21.

Seven analysts out of 14 polled by Reuters think the rate will remain at 17.5% due to the ongoing political uncertainty.

The other seven forecast a reduction to 17.0% due to a slowdown in inflation.

A median inflation forecast by the analysts for June was at 9.5% year-on-year, from 9.6% in May and 9.8% in December.

The analysts believe the central bank had kept its rate high partly to draw foreign investment into high-yield domestic government bonds, helping the government raise money to service its debt payments.

Foreign investors' holdings of domestic bonds have jumped nearly 10-fold since the start of the year, to 61.6 billion hryvnias ($2.4 billion) as of July 8. The finance ministry also raised 1 billion euros abroad through seven-year Eurobonds in June.

Ukraine's economy may face imbalances if interest rates continue to remain high, said Oleksiy Blinov from Alfa Bank Ukraine.

"The issue of refinancing state debts in 2019 has practically been resolved ... The central bank has the possibility to continue a gradual ... reduction of its interest rate," he said.

In April the central bank cut its rate by 0.5 percentage point from 18.0%. Before that it had been kept unchanged since September 2018. (Editing by Matthias Williams and Ed Osmond)