UPDATE 2-New Ukraine central bank chief surprises with rate pause at first policy meeting

(Adds analyst quote, details)

By Natalia Zinets and Matthias Williams

KYIV, July 23 (Reuters) – Ukraine’s central bank unexpectedly kept its main interest rate unchanged for the first time in a year on Thursday, at the first monetary policy meeting under a new governor who took charge promising to revive an economy pummelled by the coronavirus pandemic.

Most analysts had expected a cut under new National Bank of Ukraine (NBU) chief Kyrylo Shevchenko.

Instead, the decision keeps the interest rate at the historic low of 6% set under Shevchenko’s predecessor Yakiv Smoliy, whose shock exit in early July rattled investors.

“What a pleasant surprise by the NBU keeping rates unchanged at 6% (we had assigned only a minimal probability of keeping rates constant),” wrote Ivan Tchakarov of Citi Research.

“Much more significantly, of course, this move yet again confirms our consistent assessment that the new Governor is very unlikely to change the broader thrust of monetary policy.”

The decision came as the government relaunched a Eurobond issue that it had to abort after the resignation of Smoliy, who complained of “systematic political pressure” and the harassment of central bank officials.

Ukraine also secured a 1.2 billion euro ($1.4 billion) loan deal from Brussels on Thursday.

Shevchenko has made reassuring noises to investors and the International Monetary Fund about stability and keeping the central bank independent – a key condition in Ukraine’s $5 billion loan deal with the IMF.

But he has also stressed the need to make loans cheaper for struggling businesses and consumers, which President Volodymyr Zelenskiy’s government and lawmakers have also called for.

The central bank could resume cutting rates if the situation in the country was stable and inflation was around the NBU’s target of 5%, Deputy Governor Dmytro Sologub said in a video briefing after the rate decision.

Ukraine was forced to restrict or shut down many businesses to curb the spread of the pandemic. Its economy is set to shrink around 6% in 2020, the central bank forecast on Thursday, revising down its previous estimate of 5%.

The NBU also predicted inflation would quicken to 4.7% in 2020 compared with the June level of 2.4%.

Under Smoliy, the central bank brought rates to their lowest level since Ukrainian independence in 1991, but he was criticised for not doing so faster and for not allowing the hryvnia to devalue. (Reporting by Natalia Zinets and Matthias Williams; Additional reporting by Karin Strohecker in London; Editing by Hugh Lawson)

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