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The major risk of the NBU’s forecast is a failure in securing the IMF loan program. Another important risk includes a longer-than-expected duration of the pandemic, with corresponding extensions of lockdown restrictions. As in its previous forecast, the National Bank expects to lower its key policy rate to 7.0% at the end of 2020. More intensive monetary softening is possible if the economy needs more significant stimuli.
Responding to the new challenges brought by the pandemic, the NBU resorted to more intensive monetary softening. Recall, the previous forecast of the key policy rate assumed that by the end of 1H20, the key policy rate will be at 9%.
This action is not likely to find a fast and effective response from Ukrainian business. In particular, Ukraine’s commercial banks are likely to have their own risk assessments of potential borrowers and the economy overall. Given the high uncertainty of the current economic situation, Ukrainian banks are likely to put their lending programs on hold.
This move is also unlikely to have any influence on the domestic debt market given the near-zero chances of MinFin placing any new UAH-denominated bonds on the market in the nearest weeks.
45 UKRAINE Country Report May 2020 www.intellinews.com
