16:18 Jun. 9, 2016
Gontareva forecasts the 'first signs' of lending in the end of 2016
Ukraine's central bank plans to cut interest rates to pave the way for its banks to resume lending activity as soon as the end of this year, Governor Valeriya Gontareva said.
The National Bank of Ukraine, which last month unexpectedly cut its benchmark to 18 percent, expects its key rate to be "slightly positive to inflation" at the end of the year if the bank meets its 2016 inflation target of 12 percent, Gontareva said in an interview in Kiev on Thursday, according to Bloomberg.
Ukraine's economy has been healing, with declining inflation prompting the second rate cut in two months in May. A reconfiguration of the government in April has also renewed optimism among investors that disbursements from a .5 billion International Monetary Fund bailout, held up since October, will resume soon. The Washington-based lender has said the next funds may be approved in July.
"If our key rate now is at 18 percent, at the end of the year, if we reach 12 percent, of course our key rate will be slightly positive to inflation," she said.
Ukrainian banks have in the past borrowed foreign currency at 10 percent to 11 percent, which would make local-currency loans at 12 percent "reasonable," Gontareva said. She forecast the "first signs" of lending as soon as at the end of 2016.
"If toward the end of the year we will reach 12 percent inflation, I think 12 percent in local currency is a very good interest rate for our businesses," she said.
Court reform is also needed to help lending resume. An increase in utility tariffs, which comes into effect from July, could derail the inflation goal, Gontareva said.