Friday, September 18, 2020

Azerbaijan cuts rate 16th time to keep inflation in target

     Azerbaijan's central bank cut its key interest rate for the fourth time this year and for the 16th time in 2-1/2 years, saying this will support demand, accelerate the economic recovery and help keep inflation within its target.
     The Central Bank of the Republic of Azerbaijan lowered its discount rate by another 25 basis points to 6.50 percent and has now cut it by 100 points this year following cuts in January, June and July.
     Since February 2018, when CBA began its monetary easing cycle, the rate has been cut 16 times and by a total of 8.50 percentage points from 15.0 percent.
     The central bank added future decisions about the interest rate corridor would be based on the balance of risks, the trajectory of inflation, the international situation and the foreign exchange market.
     The lower limit of CBA's rate corridor is now 6.0 percent and the upper limit at 7.0 percent.
     Azerbaijan's inflation rate was largely steady at 2.8 percent in August from 2.9 percent in July, below the midpoint of CBA's target range of 4.0 percent, plus/minus 2 percentage points, due to weak aggregate demand.
      Inflationary expectations in the real sectors of the economy continue to decline, CBA said, adding it had adjusted its inflation forecast and now expects inflation of 3.0 to 3.2 percent by the end of this year, below the center of its target range.
     "Although there has been some improvement in global economic activity with the partial easing of the quarantine regime in many countries, the recovery process has been very slow amid expectations of a second wave of the epidemic," CBA said, adding volatility in financial markets, including currency and commodity markets, had risen this month.
     "The continuation of the quarantine regime in many countries around the world hinders the continued recovery of oil demand," CBA added.
     Azerbaijan is one of the birthplaces of the oil industry with the first oil well in the world drilled in 1846 and the first oil refinery built in Baku in 1878.
     Despite low oil prices this year, Azerbaijan's foreign trade balance has remained in surplus, helping boost its foreign exchange reserves that currently stand at US$51.4 billion, up 0.6 percent this year. 
      The currency market has remained stable and increased transfers from the country's oil fund in connection with the state budget will provide additional support and balance the foreign exchange market, CBA said.
      The bank added the rate of decline in the country's non-oil sector has slowed due to an easing of pandemic-related restrictions, with the bottom of the decline in gross domestic product in the non-oil sector of 2.5 percent at the end of the first half and a 1.7 percent declined at the end of August.
      

     

Wednesday, September 16, 2020

Brazil pauses after 21 rate cuts, no plans to trim stimulus

     After 21 rate cuts in almost four years, Brazil's central bank paused and kept its rate steady but said it was not planning to reduce the current level of monetary stimulus unless inflation expectations and the projected inflation rate gets sufficiently close to its inflation target in the next two years.
    The Central Bank of Brazil (BCB) left its benchmark Selic rate at 2.0 percent after cutting it 12 percentage points since October 2016, including five rate cuts this year by 250 basis points.
     Copom, the bank's policy-setting committee, said today's decision reflected its baseline scenario for inflation, a higher-than-usual variance in the balance of risk, and is consistent with inflation returning to its target over the forecast horizon that includes 2021 and to a lesser extent 2022.
     The decision to maintain the rate comes after the central bank last month said any remaining space for further monetary easing was now small and any further changes to the degree of stimulus would be gradual and depend on the outlook for fiscal policy and inflation.
     Copom said current economic conditions continue to call for "unusually strong monetary stimulus," but for prudential and financial stability reasons, the "remaining space for monetary policy stimulus, if it exists, should be small."
      Any "possible future adjustments to the current degree of stimulus would thus be gradual and depend on the fiscal trajectory as well as any changes to the bank's view of the path of inflation, Copom added.
     Copom said it would now use forward guidance as an additional tool of monetary policy to provide the stimulus considered adequate to meet the inflation target.
     Forward guidance has become widely used by central banks in advanced economies where interest rates have been close to the lower bound but less so in emerging markets where interest rates in general are higher and vulnerabilities of the financial system greater.
     Although BCB has used forward guidance on some occasions in the past, last month it specifically adopted the strategy of forward guidance to ensure market interest rates remain low.
     The central bank's president, Roberto Campos Neto, has acknowledged BCB is now testing the lower bound of interest rates for an emerging market country while also realizing the need for stimulus to help the economy recover after the COVID-19 pandemic.
      Brazil's inflation rate rose to 2.44 percent in August from 2.31 percent in July and Copom expects inflation to rise in the short term due to temporary increases in food prices and a partial normalization of prices of some service as part of a recovery of economic activity.
     However, measures of underlying inflation remain below the level that is compatible with meeting the bank's inflation target of 4.0 percent, plus/minus 1.5 percentage points, BCB said, adding inflation expectations from the weekly Focus survey show 2020 inflation of around 1.9 percent, 3.0 percent for 2021 and 3.5 percent for 2022.
     Copom's own inflation projections based on a constant exchange rate of 5.30 real to the U.S. dollar are around 2.1 percent for 2020, 2.9 percent for 2021 and 3.3 percent for 2022. This scenario also assumes the Selic rate will end this year at 2.0 percent before rising to 2.5 percent in 2021 and 4.50 percent in 2022.
     Brazil's economy shrank 9.7 percent in the second quarter from the first quarter, which shrank 2.5 percent, but the central bank said recent data suggested a partial recovery of economic activity.
      However, uncertainty about economic growth remains larger than usual, especially fore the period beginning at the end of this year in connection with the expected unwinding of stimulus programs.
     Earlier this month Campos Neto said the bank was forecasting a contraction in gross domestic product this year of around 5 percent and then a recovery of more than 4 percent in 2021.

Armenia cuts rate 4th time in 2020 on low inflation

     Armenia's central bank lowered its key interest rate for the fourth time this year and said it was leaning toward continuing monetary stimulus in the medium term due to the low rate of low inflation and a delay in a recovery of domestic and international demand.
     The Central Bank of Armenia (CBA) cut its benchmark refinancing rate by another 25 basis points to 4.25 percent and has now cut it by 125 points this year following earlier cuts in March, April and June.
     CBA has been gradually lowering its refinancing rate since August 2015 when the rate was 10.50 percent. Initially, the rate was cut by 450 basis points in 12 steps until February 2017, when it was kept unchanged for almost two years.
     But in January 2019 CBA returned to the easing path and since then the rate has been cut six times by a total of 175 basis points.
     Although the the world economy is recovering from measures to contain the COVID-19 pandemic, CBA said there is still a high degree of uncertainty related to fully overcoming the pandemic and this will significantly restrain and delay the complete recovery of demand and economic activity in Armenia's main trading partners.
     Under those conditions, these countries will continue to pursue monetary stimulus with the result the board of CBA does not expect the external sector to have any inflationary impact on Armenia's economy.
      Armenia's inflation rate rose to 1.8 percent in August from 1.5 percent in July and although it is expected to gradually rise and average around 2.5 percent this year it will first stabilize around the target at the end of the forecast horizon as domestic demand and economic activity recovers at a slower-than-expected pace.
     CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
     Armenia's gross domestic product contracted by an annual 13.7 percent in the second quarter after expanding by 3.9 percent in the first quarter, in line with CBA's forecast, and in July economic activity was below expectations due to a decline in the services sector.
     The central bank's board said it remains convinced more fiscal stimulus is key to restoring overall domestic demand in addition to monetary stimulus because different sectors have suffered disproportionate losses and monetary policy has more of an overall impact.
     It added the risks of inflation deviating from its forecast is largely balanced but in the event it deviates, it is ready to respond accordingly to ensure price stability.
     CBA raised its forecast for the economy to contract by 6.2 percent this year, up from an earlier forecast of 4.0 percent, and expects growth in 2021 of 4 - 5 percent after growth of 7.6 percent in 2019.
     

     
   

Tuesday, September 15, 2020

Mongolia cuts rate 3rd time in 2020 to support recovery

    Mongolia's central bank cut its policy rate for the third time this year, saying this should help it meet its inflation target, ease the economic slowdown and support the economic recovery.
    The Central Bank of Mongolia (Mongolbank) lowered its policy rate by another 100 basis points to 8.0 percent and has now cut it 300 points this year following earlier cuts in March and April.
    The bank said in a statement from Sept. 14 the rate cut was aimed at increasing the amount of loans provided by the banking sector to the  real economy and reduce interest rates, reflecting the current state of the economy and financial markets, future prospects, and uncertainties and risk in the domestic and international environment.
     Mongolia's inflation rate dropped to 2.1 percent in August from 3.4 percent in July but Mongolbank said it expects inflation to rise in coming months due to the comparison with last year though it will still remain around its current level and not exceed its target in coming years.
    Mongolbank targets inflation of 8 percent, plus/minus 2 percentage points, this year and 6 percent in the medium term.
     Mongolia's economy contracted 9.7 percent year-on-year in the second quarter, up from a 10.7 percent fall in the first quarter, the sharpest decline in economic output in 20 years.
     However, the bank said monetary and fiscal stimulus, along with a recovery of the external environment, should help the economic downturn to subside in the second half of this year before returning to "normal" in 2021.
     "Global economic activity has been volatile since the second half of this year due to the COVID-19 pandemic but is expected to improve," Mongolbank said, adding it would continue to support the liquidity of banks, households and businesses and take measures to prevent any disruption to credit in the banking system.
     On Aug. 7 the bank's monetary policy committee decided at an unscheduled meeting to extend its measures to restructure and extend the maturity of consumer loans for lenders experiencing difficulties due to the current economic circumstances to the end of this year.
     Under its original decision from April, loans for some 76,000 borrowers have been amended covering consumer loans of 663 billion tughrik.

     
    

Sunday, September 13, 2020

This week in monetary policy: Poland, Armenia, Georgia, USA, Brazil, Japan, Taiwan, Indonesia, UK, South Africa, Russia, Azerbaijan & Mongolia

    This week - September 14 through September 19 - central banks from 13 countries or jurisdictions are scheduled to decide on monetary policy: Poland, Armenia, Georgia, United States of America, Brazil, Japan, Taiwan, Indonesia, United Kingdom, South Africa, Russia, Azerbaijan and Mongolia.
    This week also features the OECD's latest interim economic outlook on Sept. 16, with a summary on the OECD website at 09:00 GMT.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.


WEEK 38
SEP 14 - SEP 19, 2020:
POLAND15-Sep0.10%0-1401.50%         EM
ARMENIA15-Sep4.50%0-1005.50%
GEORGIA16-Sep8.00%-25-1007.50%
UNITED STATES16-Sep0.25%0-1502.00%         DM
BRAZIL16-Sep2.00%-25-2505.50%         EM
JAPAN17-Sep0.10%000.10%         DM
TAIWAN17-Sep1.125%0-251.375%         EM
INDONESIA17-Sep4.00%0-1005.25%         EM
UNITED KINGDOM17-Sep0.10%0-650.75%         DM
SOUTH AFRICA17-Sep3.50%-25-3006.50%         EM
RUSSIA18-Sep4.25%-25-2007.00%         EM
AZERBAIJAN18-Sep6.75%-25-758.00%
MONGOLIA18-Sep9.00%0-20011.00%

 

    www.CentralBankNews.info                    

Thursday, September 10, 2020

Uzbekistan cuts rate 2nd time as inflation drops

     Uzbekistan's central bank lowered its policy rate for the second time this year, saying the absence of upward pressure on inflation gave it monetary policy room to maintain moderately positive real interest rates and economic activity during the COVID-19 pandemic.
     The Central Bank of the Republic of Uzbekistan (CBU) cut its refinancing rate by another 100 basis points to 14.0 percent and has now cut it 200 points this year following a cut in April when it cut the rate for the first time in 5 years on a faster-than-expected decline in inflation.
     CBU maintained its forecast for inflation to decline to between 11.0 and 12.5 percent by the end of the year but added there is an increased likelihood that inflation will be in the low end of that range, and the forecast could even be lowered due to a steady fall in inflation expectations.
     Inflation in the Central Asian country fell to 11.7 percent in August from 14.4 percent in July and said itself, along with the government, will take all necessary measures to reach its inflation target of 5.0 percent by 2023.
     For the first 8 months of the year inflation slowed to 11.6 percent from 15.2 percent at the end of 2019, below the expected trajectory due to the government's decision to defer any increase in electricity and gas tariffs, the impact of quarantine restrictions on domestic demand, lower incomes and employment.
     In addition, CBU said there has been an absence of devaluation pressure on the som as the weakening of its exchange rate in April was offset by a stabilization.
     At the beginning of this year CBU began transitioning to an inflation targeting regime, with the aim of lowering inflation to 10 percent in 2021 and then 5 percent in 2023. As part of a new central bank law adopted in November last year, the central bank has also been given a broader supervisory role over the banking system and has begun issuing economic forecasts in line with international practices.
     The exchange rate of the som fell almost 6 percent in April following the central bank's rate cut and since then it has resumed a more steady decline. Today it was trading around 10,291to the U.S. dollar, down 7.7 percent since the start of the year.
     CBU said it expects the som to trade close to its fundamental trend, without "serious fluctuations." 
     In late April CBU's president said there would be no shortage of foreign currency as the central bank had received a $200 million advance from the Federal Reserve Bank of New York and then in May received an additional $400 million, according to local news reports.
     A recovery of Uzbekistan's economy - which relies on gas exports and remittances from workers in Russia - is expected to be gradual as the shock of measures to contain the coronavirus weak off but a return to pre-crises levels will be protracted due to low growth in income and the more cautious behavior of economic agents, the central bank said.
      After a gradual recovery of economic activity in the May to June period, CBU said there was a slightly decrease in July and August, and the number of transactions processed through the banking system those months fell by 8 percent and 9 percent compared with June.




ECB retains rates, asset purchases, keeps eye on euro

    The European Central Bank (ECB) maintained its ultra-low interest rates and asset purchase program, as widely expected, and while it acknowledged it was keeping an eye on the dampening impact of the euro's recent rise on inflation, it also raised its forecast for economic growth and inflation slightly.
     The ECB, the central bank for the 19 European countries that use the single currency, kept its benchmark refinancing rate at zero percent and the marginal lending rate at 0.25 percent - unchanged since March 2016 - and the deposit rate at minus 0.50 percent, unchanged since September 2019.
     It also confirmed its guidance that it expects to keep these key interest rates unchanged, or at lower levels, until it sees the outlook for inflation converge to a level that is close to, but below, 2.0 percent.
     As other countries with key interest rates at rock-bottom levels, the ECB has been purchasing assets to help stimulate economic activity, and while its governing council said it would continue these purchases, it also tweaked its statement slightly to reflect the slight upward revision of its inflation forecast for 2021.
     Today it said these purchases were helping ease the overall policy stance and thus helping offset the "downward impact" of the pandemic on the projected path of inflation, a slight difference from July's statement when it said the purchases were helping offset the "pandemic-related downward shift" in the projected path of inflation."
     In July the ECB almost doubled the size of its pandemic emergency purchase program (PEPP) to 1.35 trillion euros and extended it by a further six months to the end of June 2021, adding these purchases will continue until it judges the crises phase of the coronavirus is over.
     The ECB today also confirmed it would continue to reinvest any payments from maturing securities bought under PEPP until at least the end of 2022, with net purchases under its older asset purchase program (APP) continuing at a monthly pace of 20 billion along with the purchases of an additional 120 billion under a temporary envelope until the end of the year.
     Underscoring just how fixed a part of its monetary policy that asset purchases - or quantitative easing - has become, the ECB confirmed it expects to continue these monthly purchases under APP and they will "run as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates."
     "The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry," the ECB said.
     In addition to the ECB's massive stimulus, European Union governments in July agreed a landmark 750 billion euro spending package in response to the economic crises unleashed by the COVID-19 pandemic that would partly be funded by the collective sale of bonds, a first by the EU.
     This EU package buoyed financial markets' optimism over the prospects of a recovery of Europe's economy, boosting the exchange rate of the euro against the U.S. dollar.
     After steadily sliding against since April 2018, the euro hit a low of 1.066 U.S. dollars on March 20. Since then it has been firming and hit 1.199 on Sept. 1 before retreating, partly in response to speculation the ECB may boost its easing measures as a reply to the U.S. Federal Reserve's recent adoption of an average inflation target, which is expected to lead to lower interest rates, for longer.
     But in the wake of today's slightly more optimistic outlook by the ECB, the euro bounced back to trade at 1.190 dollars, still below the recent high but up almost 6 percent this year.
     Although ECB President Christine Lagarde underlined the "significant uncertainty" surrounding the strength of the euro area's recovery, she said recent data "suggest a strong rebound" in activity and domestic demand has shown a significant recovery from low levels even as uncertainty continues to weigh on spending and investment.
     Nevertheless, the strength of any recovery remains dependent on the evolution of the pandemic and the rise in coronavirus infection rates during the summer months constitute a headwind to the economic outlook in the short term, necessitating continued ample monetary stimulus, Lagarde said.
    "At the same time, in the current environment of elevated uncertainty, the Governing Council will carefully assess incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook," she said.
     The economy of the euro area shrank 11.8 percent in the second quarter from the first quarter, slightly less than expected, but deeper than a 3.7 percent quarterly decline in the first quarter.
     But economic output is on track to rebound in the third quarter, despite the dampening impact of the recent rise in infection rates, and ECB staff upgraded their forecast for growth this year to a contraction of 8.0 percent in gross domestic product as compared with the June forecast of an 8.7 percent fall.
     For 2021 the euro area's economy is seen expanding 5.0 recent, slightly down from 5.2 percent seen in June, and then by 3.2 percent in 2022, down from 3.3 percent.
     "Overall, the balance of risks to the euro area growth outlook is seen to remain on the downside," Lagarde said.
     Despite a fall in inflation in August to minus 0.2 percent and expectations that inflation will remain negative in coming months debt to weak demand and a rise in the euro, ECB staff still kept its forecast for 2020 average inflation unchanged at 0.3 percent.
     Helped by a recovery in demand, inflation in 2021 should rebound and average 1.0 percent, up from the June forecast of 0.8 percent, and rise further to 1.3 percent in 2022, unchanged from June.

Wednesday, September 9, 2020

Moldova cuts rate 4th time in 2020 to boost inflation

     Moldova's central bank cut its main interest rate for the fourth time this year to stimulate demand and economic activity as well as boost inflation so it achieves its primary objective.
     The National Bank of Moldova (NBM) cut its base rate by another 25 basis points to 2.75 percent and has now cut it by 275 points this year following two cuts in March and one in August.
     Since December 2019, when the central bank began easing after raising the rate twice last year, the rate has been cut by a total of 475 points.
     In addition to cutting its base rate, NBM also lowered its rate on overnight loans to 5.25 percent and the rate on overnight deposits to 0.25 percent.
      The bank also raised the required reserve ratio on funds in freely convertible currencies by 150 basis points to 30.0 percent for the period of Oct. 16 to Nov. 15, and for Nov. 16 to Dec. 15.
      The central bank said the increase in the reserve ratio was to strengthen the transmission mechanism of its monetary and foreign exchange policy.
     "This decision is stimulative and aimed at achieving the fundamental objective of the National Bank, as well as supporting the lending process to support aggregate domestic demand and thus the national economy," NBM said after a unanimous decision by its executive committee.
     The rate cut takes place amid disinflationary pressures, both domestically and internationally, including an appreciation of the leu, lower regulated prices on electricity, international energy and food.
     Inflation in Moldova was 4.2 percent in July, largely unchanged from 4.3 percent in June and 4.1 percent in May, NBM said it was possible inflation would fall below the lower limit of its target range of 5.0 percent, plus/minus 1.5 percentage points this year and remain around that level until the end of 2021.
     Moldova's leu has been rising steadily since early April and was trading at 16.6 to the U.S. dollar today,   up 4.2 percent this year.

Monday, September 7, 2020

Kazakhstan holds rate, economy seen shrinking in 2020

     Kazakhstan's central bank left its benchmark interest rate steady, but lowered its forecast for economic growth this year based on the deeper-than-expected fall in activity in the second quarter and the extension of the lockdown over the COVID-19 pandemic during the first half of August.
     The National Bank of Kazakhstan (NBK) kept its base rate at 9.0 percent but has lowered the rate by a total of 300 points this year following cuts in April and in July. But in net terms the rate has only been cut 25 basis points this year as the rate was raised by 275 basis points in am emergency move in March to protect the tenge.
     In its statement, NBK said the current base rate will allow it to control inflation and ensure a smooth deceleration toward its target in the medium term.
      Inflation in Kazakhstan eased to 7.0 percent in August from 7.1 percent in July, with consumer prices pushed up by higher food costs and is expected to accelerate to 8.0 percent, closer to the lower limit of the previous forecast of between 8.0 and 8.5 percent, the bank said.
     It added the pass-through from a depreciation of the tenge's exchange rate was offset by suppressed consumer demand for non-food products and a slowdown in the price of gasoline and diesel prices.
     The tenge plunged 15 percent against the U.S. dollar in March but then rebounded in April as oil prices bottomed and began to rise. But since early June the tenge has been falling and was trading at 424 to the dollar today, down 10 percent since the start of 2020.
      Weakly-anchored inflation expectations, higher volatility in financial markets amid "growing sanctions rhetoric against Russia", an expected slow recovery of demand for oil and any further fiscal or quasi-fiscal stimulus present risks of higher inflation, the bank said.
      But disinflationary pressures come from lower economic activity, a slowdown in consumer demand and the expected decline in global food prices will limit inflation, NBK said, adding inflation in 2021 is expected to gradually slow and reach the the upper limit of its target band of 4.0 to 6.0 percent by the end next year.
      Kazakhstan's economy shrank by an annual 2.9 percent at the end of July and NBK forecast a contraction for the full year of 2.0 to 2.3 percent, down from an earlier forecast of a 1.8 percent drop, noting a deeper than expected contraction in the second quarter and the extension of the lockdown for the first two weeks of August.

Sunday, September 6, 2020

This week in monetary policy: Kazakhstan, Moldova, Canada, Malaysia, Uzbekistan, Serbia, ECB & Peru

    This week - September 7 through September 12 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: Kazakhstan, Moldova, Canada, Malaysia, Uzbekistan, Serbia, the euro area and Peru.
     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 37
SEP 7 - SEP 12, 2020:
KAZAKHSTAN7-Sep9.00%-50-259.25%
MOLDOVA9-Sep3.00%-25-2507.50%
CANADA9-Sep0.25%0-1501.75%         DM
MALAYSIA10-Sep1.75%-25-1253.00%         EM
UZBEKISTAN10-Sep15.00%0-10016.00%
SERBIA10-Sep1.25%0-1002.50%         FM
EURO AREA10-Sep0.00%000.00%
PERU10-Sep0.25%0-2002.50%         EM
 
    www.CentralBankNews.info
                    

Thursday, September 3, 2020

Ukraine holds rate 2nd time, virus determines next move

      Ukraine's central bank left its key interest rate steady for the second consecutive time, saying future monetary policy decisions will depend on how the COVID-19 pandemic develops as the current policy stance is expansionary but still leaves room for further rate cuts if the economy needs stimulus.
      The National Bank of Ukraine (NBU) left its key policy rate at 6.0 percent, as in July when it paused after cutting it 9 times and by 12 percentage points since April 2019. 
     This year alone the rate was cut four times by a total of 7.50 percentage points.
     "Under current circumstances, the key policy rate of 6% is aimed at keeping the balance between maintaining moderate inflation and stimulating the economy," the NBU said, adding:
     "However, if the adverse impact of the coronavirus pandemic on domestic demand and business activity increases, the NBU will be ready to give the economy additional impetus for growth. Conversely, the NBU could also deploy monetary tools to respond to the likely increase in inflation risks in 2021."
     The pause in monetary easing in July followed the bank's guidance in June the cycle of rapid monetary easing had come to an end and future policy decisions would depend on the prospects for inflation.
     Ukraine's inflation rate was steady at 2.4 percent in July and June - below the bank's target range of 5.0 percent, plus/minus 1 percentage points - and NBU said future changes will depend on fast the economy recovers from from the pandemic.
     But NBU also expects energy prices to continue to rise as the global economy recovers, boosting inflation in the final months of the year and paving the way for inflation to enter its target range.
     Ukraine's economy contracted 9.9 percent in the second quarter from the first quarter for an annual drop in gross domestic product of 11.4 percent after a fall of 1.3 percent in the first quarter.
     Although imports, retail, household spending on domestic tourism, real estate and cars indicate a further recovery in demand that is expected to continue in coming months, NBU said a new wave of COVID-19 could restrain slow the recovery, especially the services sector.
      "Maintaining a loose monetary policy will support economic recovery amid moderate inflation and elevated uncertainty over how the pandemic is going to spread in Ukraine and the world," NBU said.
      It was the second policy decision by the bank's board headed by Kyrylo Shevchenko who took over as governor in early July after Yakiv Smoliy resigned in protest over what he said was systematic political pressure.
     Ukraine's hryvnia took a hit after Smoliy's shock resignation on July 1 but since the previous board decision on July 23 the exchange rate has stabilized though it has dropped in the last two weeks.
    Today the hryvnia was trading at 27.7 to the U.S. dollar, still down 3.6 percent since Smoliy's resignation and down 14.8 percent this year.