The board of the National Bank of Ukraine (NBU) may reduce the refinancing rate on July 23 by a maximum of 1 percentage point (p.p.), to 5% per annum, given the slight acceleration of inflation in June to 2.4% from 1.7% in May, bankers interviewed by the Interfax-Ukraine agency believe.
"Despite a slight acceleration of inflation to 2.4% in June, it still remains below the target range of the NBU (4-6%). This leaves room for further easing monetary policy, albeit at a much more cautious pace than in the first half of 2020," the executive director of the Independent Association of Banks of Ukraine, Olena Korobkova, said.
She added that a quick cut in the refinancing rate, for example, by 2 p.p. per one revision is in the past, therefore, according to her estimates, in July the indicator will decline within 1 percentage point from the current 6% per annum.
"Taking into account the monetary policy pursued by the National Bank, we can expect a further slight decrease in the refinancing rate by 0.5-1 percentage points," Ukreximbank CFO Serhiy Yermakov said.
According to the head of the analytical department of Alfa-Bank, Oleksiy Blinov, despite some acceleration, the actual inflation in June (2.4%) was twice lower than both the April forecast of the NBU (4.8%) and the target range of the regulator (4-6%).
"Today it has already become obvious that the disinflationary effects of the coronavirus crisis in the short term clearly prevailed over the inflationary ones. According to our estimates, in July-August inflation will be kept stable, close to the June value. The current situation leaves the NBU the opportunity to cut the refinancing rate, but already much slower than it has been for the last six months," he said.
The expert stressed that inflationary risks are also growing over the 12-month horizon. They are associated with both the uncertainty about financing the large state budget deficit in 2020, and with a number of announced pro-inflationary initiatives, for example, about raising the minimum wage by 38% from its the current level.