KIEV, June 7 – The National Bank of Ukraine cut its key interest rate for the first time in more than a year in an attempt to boost economic growth amid weakening consumer prices.

The NBU cut the discount rate, the rate at which it lends money to commercial banks, by 50 basis points to 7%, the first action on the rate since March 2012.

“I am convinced that the rate cut decision will be positively accepted by the market and will stimulate lending,” Ihor Sorkin, the governor of the NBU, said in a statement on Friday. “Together with other measures by the NBU, this will boost economic activity and will promote stability of the banking system.”

The rate cut will be in effect from June 10, according to the statement.

Ukraine’s economy contracted 1.3% in the first quarter from a year earlier amid weakening demand for the country’s exports, mostly steel.

Consumer prices fell 0.4% in May on the year, according to the State Statistics Committee. Consumer prices fell 0.2% on the year in 2012, according to the committee.

NBU officials said earlier this year that weakening consumer prices was one of the reasons that could force the bank to consider cutting the rate.

“The rate cut seems to be logical taking into account the last year deflation and the [weak] level of inflation this year,” Artem Karelin, the head of the investment department at TASCombank, told Interfax-Ukraine.

“The rate cut reflects real decline in interest rates on the interbank market over the past six months,” Anton Stadnik, the head of the treasury at FUIB, said.

The Ukrainian government expects the economy to grow up to 3.4% on the year in 2013 with inflation at up to 6.1%, with many analysts rejecting these forecasts as unrealistic.

Ukraine’s economy will probably have a zero growth in 2013 that may accelerate to 2.8% on the year in 2014, the International Monetary Fund forecast in April.

The IMF also forecast average annual inflation in Ukraine at 0.5% in 2013.

Ukraine's economy may expand 1.1% on the year in 2013, down from an earlier estimate of 2.4%, according to a forecast by Ernst & Young. Inflation will probably be at 5% in 2013, the company forecast.

“The economic downturn caused by the industrial recession continued in the first quarter of this year, and the economy is expected to recover only after the revival of the European markets," Ernst & Young reported in its forecast. (tl/ez)