UPDATE 2-Ukraine cuts interest rate for fourth time this year as price pressures ease

Ukraine's central bank on Thursday lowered its main interest rate for the fourth time this year to 15.5% from 16.5%, a steeper than expected cut, saying price pressures were easing more rapidly while economic growth was picking up. Interest rates have been in double digits since Ukraine plunged into turmoil following Russia's annexation of Crimea in 2014 and the outbreak of a Moscow-backed separatist conflict in the eastern Donbas region.

But inflation dropped into single digits last year, giving the central bank more breathing space. The central bank, called the National Bank of Ukraine (NBU), wants to bring inflation down to 5% and to gradually lower interest rates to 8% by 2021. Speaking at a briefing, Governor Yakiv Smoliy also said he expects the International Monetary Fund to disburse a loan tranche under a new assistance program this year and that any delay in signing a deal could derail central bank forecasts.

The central bank has previously warned that talks with the IMF were at risk because of a dispute between the state and a powerful businessman over control of nationalized lender PrivatBank. The government received a boost after PrivatBank won an appeal in a London court in an ongoing case against its former main owner last week. "The NBU continues the cycle of monetary policy easing as inflation is firmly declining towards the target of 5%," the central bank said in a statement.

"The steady disinflation has been driven by a gradual easing of underlying pressures on prices, reflected in a rapid slowdown of core inflation," Smoliy said inflation could slip below 7% in October from 7.5% in September. A stronger hryvnia currency, low global energy prices, and increased food supplies had also helped ease inflation, he said.

The central bank revised its economic growth forecast to 3.5% in 2019 compared to an earlier estimate of 3% and also said foreign exchange reserves would be higher than previously thought by the end of the year. Speaking alongside Smoliy, Deputy Governor Dmytro Sologub said he expects the government to issue $4 billion in Eurobonds in 2020, but would not issue any more Eurobond debt this year.

Thursday's rate cut, which takes effect on Friday, is bigger than expected. A Reuters poll of analysts had forecast a cut to 16%, with only two out of 15 respondents predicting a sharper decrease to 15.5%. The central bank wants to cut rates gradually to single digits but said it would accelerate monetary easing if the government implemented reforms.

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