KIEV (Reuters) - Ukraine's annual inflation slowed further in November, nearing the central bank's target in a trend likely to prompt the central bank to cut its key interest rate next week, a Reuters monthly poll of analysts showed on Friday.
The central bank, which has already cut the rate four times this year, holds its last policy meeting of 2019 on Dec. 12.
All 16 respondents in the poll expected the rate to be cut from its current level of 15.5%. Their median forecast for November inflation was 5.9%, down from 6.5% in October and 10.0% in November 2018.
Of those polled, 11 expect the bank to cut its key rate to 14.5%, while four forecast a more modest reduction, to 15.0%, and one participant sees a bigger cut, to 14.0%.
As well as slowing inflation, analysts for the Ukrainian subsidiary of OTP cited a firming of the national currency, the hryvnia, and lower yields on local debt among the factors likely to prompt a further easing of monetary policy.
"A reduction of the rate by 100 basis points in December corresponds to the base scenario of the central bank," said Olena Belan from Dragon Capital.
But Belan added that a 150 bp cut was also possible if the International Monetary Fund announces in the next few days that there is a staff-level agreement on a new program for Ukraine.
Ukraine’s government is in talks with the IMF about the three-year program, which may replace its current standby aid deal and support reforms with loans of up to $6 billion.
Analysts said they expect inflation to have slowed due to the central bank's tough monetary policy and an inflow of foreign capital into local government bonds. This has buoyed the hryvnia and led to cheaper gas, oil and consumer goods imports.
Lower prices of gas and oil on international markets have added to the downward pressure on Ukrainian inflation.
Foreigners have increased their local bond portfolio by 99.7 billion hryvnias ($4.2 billion) to 106.1 billion hryvnias since the start of the year, while the hryvnia has strengthened 16% to reach 23.88 per dollar.
In 2017-2018 the central bank raised its key interest rate from 12.5% to 18.0% to help curb inflation.
(Reporting by Natalia Zinets; Editing by Gareth Jones)
