Dear colleagues,
The Board of the National Bank of Ukraine has decided to raise the key policy rate to 16.5% in view of a significant increase in price pressures and a deterioration in inflation expectations.
This decision will support the attractiveness of hryvnia assets and the sustainability of the FX market, allowing to keep inflation expectations and price dynamics in check.
The NBU stands ready to respond flexibly to further changes in the balance of risks, taking into account both the persistence of price pressures and potential effects of weaker economic activity.
Price pressures have increased markedly due to the consequences of russia’s attacks on business and logistics as well as due to the surge in fuel prices
In recent months, inflation has continued to rise, noticeably exceeding the NBU’s previous forecast. In September, headline inflation accelerated to 10.0% yoy and core inflation increased to 8.8% yoy. These trends continued in October, according to the NBU’s estimates.
Inflation dynamics were driven primarily by direct and second-round effects from the surge in fuel prices caused by the war in the Middle East, as well as the intensification of russia’s attacks on warehousing and logistical infrastructure of Ukraine.
In such conditions, inflation expectations of households remained volatile and high, while those of the banks and analysts worsened significantly.
Inflation will return to a decline in 2027 as effects of higher fuel prices wane and thanks to the NBU's monetary policy measures
The inflation forecast for 2026 has been revised upward, to 12.5%. The NBU estimates that consequences of aerial attacks alone will add around 0.7 pp to annual inflation. Other important factors affecting the price dynamics will include effects of higher fuel prices and an expansion of fiscal stimulus.
Inflation will slow to 7.3% yoy in 2027. This should be facilitated by the expected decrease in global prices for crude oil as well as by monetary policy measures. The NBU will continue to support the attractiveness of hryvnia assets and the sustainability of the FX market, which will rein in price pressures. Inflation will also be restrained by the likely cooling of domestic demand and the labor market in the coming months due to consequences of russia’s attacks.
As before, inflation is expected to return to the 5% target in 2028. A gradual easing of the pressure on businesses’ production costs and an increase in domestic supply of goods and services are important preconditions for this.
Russia’s attacks have led to a sharp fall in business activity, and losses in economic potential will constrain recovery
According to the NBU’s estimates, real GDP decreased by 0.5% yoy in Q3. Such dynamics were driven primarily by the consequences of the sea port blockade and russia’s attacks on production facilities and logistics. Metallurgical and ore mining enterprises suffered the greatest losses. At the same time, performance also deteriorated in other industrial sectors, trade, and agriculture.
As a result, the NBU revised the real GDP forecast for 2026 downward, to (-0.4%). Consequences of intensified aerial attacks had the biggest impact on the worsening of the forecast, with their negative contribution to GDP being estimated at 1.9 pp.
Considering the consequences of the inflicted damage, the NBU projects economic growth to recover slowly in 2027–2028. A revival of economic activity will be supported, among other things, by public and private investment in the defense industry, localization of weapon production financed by Ukraine Support Loan, and projects to reconstruct critical infrastructure. If the NBU’s technical assumption about the improvement in logistics in mid-2027 materializes, real GDP may grow by 0.4% next year. In 2028, economic growth will speed up to 2.2% as security risks subside.
External assistance remains crucial for supporting macrofinancial stability
Volumes of international financial assistance in Q3 were smaller than expected, primarily due to Ukraine delaying the implementation of reforms. That said, in October, the parliament adopted a number of laws to unblock the financing form the EU and the IMF. The pace of fulfilling commitments under support programs is expected to be caught up further, which will lower the uncertainty about sources of budget financing.
The NBU’s forecast envisages Ukraine to receive around USD 50 billion of direct budget support and more than USD 32 billion under the defense component of Ukraine Support Loan in 2026. USD 52 billion and USD 37 billion, respectively, are assumed to be received in 2027. Such volumes of assistance would allow financing large budget needs and maintaining international reserves at a comfortable level (more than USD 62 billion in 2026–2027).
The course of the full-scale war remains the key risk to inflation dynamics and economic development; however, longer-lasting hostilities in the Middle East could also have a significant impact
The war is continuing. The intensification of russia’s targeted attacks on production facilities and infrastructure in recent months has significantly heightened inflation risks associated, in particular, with rising production costs and a decline in the supply of goods and services.
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 pressures due to a deepening labor shortage and negative migration trends.
Risks of disruptions to the timing and/or changes to the volumes of international financing persist. However, these risks have decreased thanks to Ukraine’s fulfillment of some of its obligations under support programs and preliminary signals from partners regarding financing for the next year.
The risks associated with the war in the Middle East, primarily those related to higher oil prices, are also significant. High energy prices are hampering economic growth and increasing price pressures in Ukraine, while simultaneously fueling russian aggression.
At the same time, a further deterioration in the security situation could lead to a noticeable cooling in domestic demand, which would have a disinflationary effect. In addition, difficulties in exporting due to port blockades may contribute to a short-term decline in purchase prices for certain food products.
That said, there remains the potential for a more favorable turn of events linked to 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 16.5%
Previous steps to tighten interest rate policy have bolstered the appeal of hryvnia assets. As is usually the case, small banks were the first to respond to the hike in the key policy rate; however, over the past month, large financial institutions with a significant market share have also begun to adjust their interest rates on hryvnia deposits.
As a result, robust demand for hryvnia savings persisted. Hryvnia retail deposits and investments in hryvnia domestic government debt securities continued to grow.
The October hike in the key policy rate will strengthen the transmission of previous decisions, which will help maintain the attractiveness of hryvnia assets.
This decision will also help contain pressures on the FX market, which have intensified due to a decline in exports and worsening expectations amid escalating russian attacks on businesses and civilians.
Tightening monetary policy to curb inflation aligns with the NBU’s goal of supporting the economy
Price stability is an essential prerequisite for restoring stable economic growth and sustainable lending development. A moderate increase in the key policy rate is a well-considered decision that helps maintain a balance between keeping inflation in check and supporting the economy.
Despite the NBU’s tightening its interest rate policy, lending growth remained robust. In September 2026, growth in net hryvnia corporate loans exceeded 32% yoy, while net retail loans grew by over 38% yoy.
The NBU continues to place significant emphasis on further supporting lending to sectors that are priorities for defense and economic resiliense. In recent months, the NBU has adopted four packages of regulatory changes aimed, among other things, at supporting companies in the defense, energy, agriculture and trade sectors.
The NBU stands ready to respond flexibly to further changes in the balance of risks, taking into account both the persistence of price pressures and potential effects of weaker economic activity.
The NBU forecast envisages maintaining the key policy rate at the current level until Q2 2027. At the same time, the NBU will respond flexibly to actual developments, taking into account the impact of russian attacks on inflation dynamics and economic activity.
Thank you for your attention!
Glory to Ukraine!