April 20 (Bloomberg) — Ukrainian monetary policy makers may lower the benchmark interest rate, the highest in Europe, if inflation slows, said Valeriy Lytvytskyi, an adviser to central bank Governor Volodymyr Stelmakh.

The Natsionalnyi Bank Ukrainy “will concentrate” on refinancing to boost the country’s economy, he told reporters in the capital Kiev today. While gross domestic product may have grown in the first quarter, it’s “too early to say” if Ukraine has exited its recession, he said.

Ukraine’s economy shrank 15.1 percent in 2009, the steepest decline since 1994, as the global credit crisis curbed demand for exports while shutting off capital flows. The central bank on March 9 cut its overnight rate to spur growth.

“We will cut rates,” once monthly inflation stays below 1 percent,” Lytvytskyi said. “The most important task is to reduce the gap between refinancing rates and key discount rates.”

The hryvnia traded at 7.9245 per dollar at 1:33 p.m. in Kiev, from 7.9165 yesterday. The currency has gained 1.5 percent this year. The central bank has bought about $1 billion at the interbank market this month, Lytvytskyi said, adding that he expects the exchange rate to remain stable.

Policy makers last month reduced the overnight rate to 12.5 percent from 15.5 percent when Treasury bills are used as collateral and to 13.5 percent from 17 percent for non- collateral loans. Overnight loans are the central bank’s main refinancing tool.

Inflation Slows

Inflation, the fastest in Europe, slowed to 11 percent in March, the lowest in 33 months, as the economic decline slowed the increase of food prices by cutting demand. The monthly rate fell to 0.9 percent, dipping under 1 percent for the first time this year. The producer-price index, an early indicator of inflation trends, rose to 18.6 percent in March, the highest in more than a year.

The country obtained a $16.4 billion stand-by loan with the International Monetary Fund at the end of 2008 to stay afloat. The former Soviet state has received $10.6 billion in several tranches, which were used to cover the 2009 budget gap and payments for Russian natural gas deliveries.

Ukraine based its 2010 state budget assuming a 13.1 percent December inflation rate. The government, which seeks to resume cooperation with the IMF to help cover the budget deficit this year, will need to increase the price of natural gas paid by households and the cost of utility services.

The economy had expanded each year from 2000 to 2008, driven by investment, domestic consumption and industrial production, which slid 21.9 percent last year. The outlook is “difficult” and the country needs more investment and increased consumer demand, Lytvytskyi said.