The balance of the week: international financial assistance to Ukraine, the slowdown in inflation and the decline in the national Bank discount rate

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Ukraine has received financial assistance from international partners, inflation slowed, the national Bank lowered interest rates to historic lows are the key economic news this week.

This week was marked by the receipt by Ukraine of much-needed help from one, but from two international partners – the International monetary Fund and the European Union.

On the night of 10 June it became known about the approval of the Board of Directors of the IMF an 18-month stand-by program with funding equivalent to SDR 3.6 billion (about 5 billion) that aims to help Ukraine to overcome the consequences of the pandemic COVID-19.

“The new program is aimed?? to help Ukraine to cope with the problems of a pandemic COVID-19 by the balance-of-payments and budgetary support, while maintaining the achievements and promoting a small set of key structural reforms to ensure Ukraine’s readiness to return to growth when the crisis ends,” – said the IMF.

The first tranche, received on Friday, amounted to $ 2.1 billion. President Vladimir Zelensky said that this amount is $ 200 million more than originally planned, and noted that in difficult times, the IMF has proved its reliability as a partner. According to him, the funds received from the IMF and other partners, will go to the preservation of the balance of payments and budget support of Ukraine in the current crisis.

Immediately after the approval of the International monetary Fund decision on further cooperation with our country, the European Union has allocated Ukraine 500 million euros in macro-financial assistance. These funds represent the second tranche of the fourth program of macro-financial assistance to Ukraine in the amount of 1 billion euros, which was approved by the European Union two years ago. The money came in the form of a loan of 0.125% per annum with a maturity till 10 Jun 2035. They will be used to Finance expenditures of the state budget that will contribute to the reduction of external financial pressure on Ukraine and improvement of the payment balance of the state.

Slowing inflation

The state statistics service this week released data on inflation, according to which inflation in Ukraine in may in annual terms amounted to 1.7%, slowing from 2.1% in April. According to the state statistics service, the largest price increase in may in annual terms recorded on fruit – 34,8%, a water – 25,1%, Sewerage – by 21.4%, education services – 13.5 per cent, alcoholic beverages and tobacco products – by 11.6%. Most in may decreased prices on natural gas (53.5 per cent), fuel and oil (28.2 per cent), vegetables (21.3 per cent), footwear (4,8%).

As noted in the National Bank, inflationary pressures remained weak primarily due to the noticeable fall in consumer demand for commodities.

“Also, inflation has hampered the reduction in price of energy, the preservation of a favorable situation on the foreign exchange market, increasing the supply of vegetables and “freezing” prices for a significant number of services. Inflationary pressures remain weak, particularly due to depressed demand and low energy prices. As a result, consumer inflation holds below the target range of 5 percent ± 1 percentage point”, – stated in the comments of the NBU.

At the same time, because of the quarantine is still a lack of supply of certain goods and services, so there is a possibility that after the easing of restrictive measures will be the correction in the prices of goods and services. There’s also the risk of growth of prices for raw products due to adverse weather conditions in may and reduced livestock production.

The discount rate and forecasts of the NBU

Thursday, June 11, held a briefing of the National Bank on monetary policy, in which the head of the NBU Yakov Smoliy announced the continuation of the cycle of easing monetary policy and reduced the discount rate by two percentage points to 6 percent per annum. Thus, the discount rate has reached the lowest level in the history of Ukraine’s independence.

According to the NBU, consumer and investment demand with a high probability will remain depressed for longer than forecast in April. On the one hand, it will be to keep inflation below target longer than provided the April forecast. On the other hand, this means that the fall in Ukrainian economy may be deeper than expected.

According to the head of the national Bank, this development requires further monetary easing to support the economy at the stage of the gradual phasing out of quarantine.

“The easing of monetary policies and other anticrisis measures of the National Bank, introduced in recent months will support business activity in the country. According to our estimates, the decline of the Ukrainian economy in the second quarter will be greater than expected, although the peak of the crisis has already passed. Therefore, for a speedy return of economy to growth requires decisive steps”, – said resin.

The head of the NBU said that the conditions of high level of uncertainties in the future monetary policy of the National Bank will depend on the depth of the fall in consumer demand, which reduces inflationary pressure and, on the other hand, the speed of recovery of business activity on the background of easing of the quarantine, which will accelerate the price increases.

The report of the government

On Thursday held a press conference devoted to the results of the first 100 days of the government, in which Prime Minister Denis Shmyhal report, including in the context of pandemic coronavirus.

One of the main achievements, the Prime Minister called for timely introduction of quarantine: “Time imposed quarantine is what has been done to our government. And that’s what probably saved the lives of thousands of Ukrainians have allowed us to prepare the medical system to the challenges we will face in the future,” said Smigel.

He noted that in the near future the government has no plans to change the system quarantine control in Ukraine. However, if a critical number of areas – ten or more – there will be a situation that will lead to an increase in the number of cases, it will be the occasion for making decisions about the tightening of quarantine measures in the country.

The Prime Minister also announced that the Cabinet of Ministers does not intend in the next two quarters to revise the parameters of the state budget for the current year, and to his sequestration.

“A sequestration budget is not provided because these changes to the budget, which was adopted in March, was carried out the redistribution of the budget, the majority of funds were reallocated from capital expenditure and transferred to the Fund of struggle against coronavirus and the fulfillment of social obligations. That is to say that some of the sequester has already occurred. So today we don’t lead the conversation in the next two quarters about the revision of the budget or the sequester,” said Smigel.

Next week involves the active work of people’s deputies during plenary sessions of Parliament. Most likely, Parliament will consider, among other things, modified the program of the government, that the Cabinet approved during an extraordinary meeting on Friday. And SSS will present preliminary data on Ukraine’s GDP for the first quarter of this year.

Catherine Giri

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Баланс недели: международная финансовая помощь Украине, замедление инфляции и снижение Нацбанком учетной ставки

Covid
Budget
Vladimir Zelensky
Deputies
Quarantine
Coronavirus
The government

Share