Dear colleagues,
The Board of the National Bank of Ukraine has decided to raise the key policy rate to 16% in view of the persistent underlying price pressures, second-round effects from supply shocks, and higher medium-term inflationary risks.
This decision will support the attractiveness of hryvnia assets and the sustainability of the FX market, allowing to keep inflation expectations in check and bring inflation back onto the path of steady decline toward the 5% target within the policy horizon.
The NBU stands ready to respond flexibly to further changes in the balance of risks.
Inflationary pressures remain elevated, primarily due to the effects of russian aggression and the war in the Middle East
In August 2026, consumer inflation accelerated to 8.1% yoy, slightly exceeding the trajectory of the NBU’s July forecast. Such price dynamics was driven primarily by a greater-than-expected increase in fuel prices amid the escalation of the war in the Middle East. In addition, some administered tariffs rose at a faster pace, which was largely caused by the consequences of russia’s attacks on critical infrastructure.
Core inflation has remained high in the past months. Underlying price pressures are fueled by persisting growth in businesses’ production costs, in particular for electricity, logistics, and labor. Economic agents’ inflation expectations have also been elevated.
Despite russia’s attacks, the labor market and consumer demand remained sustainable. In particular, average wages continued to grow rapidly in July and – as estimated by the NBU – in August, which supported the underlying price pressure.
Inflation is expected to slow in 2027, including thanks to the NBU’s current measures to tighten the monetary policy
In the coming months, the inflation trajectory may be somewhat higher than projected in the NBU’s previous forecast. Inflationary pressures will be fueled by the consequences of russia’s attacks on logistics, production facilities, and energy infrastructure. Moreover, higher-than-expected fuel prices will push prices up.
The impact of the global price environment remains pro-inflationary, in particular taking into account the events in the Middle East. To that end, an increasing number of central banks are raising their key rates.
At the same time, inflation is likely to be restrained by high supply of food in the domestic market, including due to complicated exports of harvests via Blacks Sea ports.
Inflation is expected to return to the decline trajectory in 2027, thanks to, among other things, the NBU’s current measures to tighten the monetary policy.
External assistance remains crucial for supporting macrofinancial stability
The NBU takes into account the government’s announcements regarding higher risks to the sustainability of public finances. On the back of smaller-than-expected volumes of official financing in July–August, the fiscal policy has been more restrained and international reserves have decreased.
At the same time, a significant portion of international assistance is conditional on the pace of reform implementation. This primarily concerns the adoption by the parliament of a number of draft laws in accordance with commitments undertaken by Ukraine under support programs. If the reforms are implemented in the coming months, volumes of external financing will mostly catch up.
Restoring the regularity and sufficiency of international assistance inflows is crucial for the sustainability of public finances and maintaining price stability.
The course of the full-scale war continues to be the key risk to inflation dynamics and economic development. Disruptions to the regularity of international financing inflows and a shortfall of previously planned volumes of international financing as well as protracted hostilities in the Middle East may also have a significant impact
The war is continuing. Russia ramping up its targeted attacks on production facilities and infrastructure increases medium-term inflationary risks.
The following war-related risks are also relevant:
- the emergence of additional budgetary needs to support defense capabilities and reconstruction, with a corresponding expansion of domestic demand, including demand for imports
- elevated wage pressure due to a deepening labor shortage and negative migration trends.
At the same time, a deterioration in the security situation could lead to a cooling in consumer demand and the labor market, which, in turn, would have a disinflationary effect.
In addition, since the July macroeconomic forecast, the risks associated with the war in the Middle East, primarily those related to higher oil prices, have increased. High energy prices are hampering economic growth in Ukraine while simultaneously fueling russian aggression.
That said, there remains a potential for a more favorable turn of events, linked to increased military and financial support from international partners and the achievement of significant progress in securing a just and lasting peace for Ukraine.
To retain the attractiveness of hryvnia assets, maintain FX market sustainability, keep expectations under control, and to gradually bring inflation back to its 5% target over the policy horizon, the NBU Board decided to raise the key policy rate by 0.5 pp, to 16%
The July increase in the key policy rate bolstered the appeal of hryvnia assets. In response to the NBU’s tighter monetary policy, some banks – mostly small ones – have already begun raising their interest rates. As a result, demand for both hryvnia deposits and domestic government debt securities persisted, which limited pressures on the FX market and curbed price increases.
A further increase in the key policy rate will support these positive trends, which is important given the persistent underlying price pressures and rising medium-term inflationary risks. Tightening monetary policy will help keep inflation expectations in check, facilitate a return of inflation to a downward trajectory and its continued movement toward the 5% target.
The NBU estimates that this step will have no noticeable dampening impact on lending. The NBU is recording the longest period of credit expansion. To provide additional support to businesses amid intensifying aerial attacks, the NBU has adopted two packages of regulatory measures aimed at expanding access to financing. The work on other measures is ongoing.
The NBU stands ready to respond flexibly to further changes in the balance of risks.
Should risks to price dynamics and inflation expectations intensify significantly, the NBU will be ready to deploy additional measures to curb inflation. However, if the deteriorating security situation leads to a noticeable slowdown in consumer demand and the labor market in the coming months, the NBU will consider easing monetary conditions.
Thank you for your attention!
Glory to Ukraine!