Ukraine Begins Interest Rate Cuts Amid Lower Inflation and Improved Outlook

Ukraine's central bank has initiated a cycle of monetary policy easing as inflationary pressures subside and external financing risks diminish, signaling cautious optimism for the nation's economic path.

The National Bank of Ukraine (NBU) has reduced its key policy rate from 15.5% to 15%, reflecting confidence in a continued decline in inflation, which slowed to 8% year-on-year in December and is projected to approach the bank's 5% target by mid-2028. Recent strong harvests and steady FX market conditions have helped stabilize prices, though ongoing challenges—including energy sector disruptions and high inflation expectations—persist. While 2026 inflation is forecast to decrease moderately to 7.5%, structural issues stemming from the war, especially in energy infrastructure, will keep inflationary pressures in play for the medium term.

Ukraine’s economy is gradually recovering, posting a modest 1.8% growth estimate for 2025, with similar growth expected in 2026. Reconstruction, defense spending, and robust external financial support—most notably a €90 billion EU package through 2027 and a new $8.1 billion IMF program in the works—are key to maintaining economic momentum and sufficient international reserves, expected to reach $65 billion at the end of 2026. The ongoing conflict, pressures on energy and labor markets, budgetary needs for defense, and potential shifts in global support continue to represent significant risks to this outlook.

The rate cut is designed to support lending and investment while maintaining the stability of Ukraine’s currency and progress towards inflation targets. The central bank maintains a flexible stance, ready to adjust policy should inflationary risks intensify or recede.

This decision marks a cautious but notable step towards monetary normalization, reflecting the country's resilience and the critical role of international partnerships in navigating ongoing wartime and economic uncertainties.