Ukraine Maintains Key Interest Rate Amid Uncertain Inflation Outlook

In response to ongoing inflationary pressures and economic uncertainties, the National Bank of Ukraine (NBU) has chosen to keep its key policy rate steady at 15.5% during its latest monetary policy update.

Despite a recent slowdown in both consumer and core inflation—driven largely by increased food supplies from new harvests—inflation expectations among households remain elevated. November’s inflation readings came in slightly below forecast at 9.3% year-over-year, but concerns linger due to the unpredictable nature of future international financing. The NBU emphasizes that maintaining higher interest rates is vital to uphold the attractiveness of hryvnia-denominated assets and the stability of the foreign exchange market, which are crucial to steering inflation toward the targeted 5% over the coming policy horizon.

While the central bank underscored that current external financial support has been sufficient—with $45.8 billion in official financing received and another $5 billion expected by year-end—the outlook for international assistance in 2026-2027 remains unclear. Significant risks persist, notably the ongoing war, potential disruptions in external funding, and further strains on the domestic labor market and energy infrastructure. On the positive side, increased military and financial support from international partners could help stabilize expectations and economic conditions.

The decision to hold the policy rate aims to encourage continued investment in domestic assets, sustain exchange rate stability, and support the gradual reduction of inflation. The NBU has signaled readiness to either tighten or loosen policy in response to evolving inflation risks, making flexible adjustments as circumstances warrant. This move is significant as it underscores the delicate balance central banks must strike in volatile environments, reinforcing confidence in Ukraine’s commitment to economic stability amidst ongoing challenges.