National Bank of Ukraine raises key policy rate to 16.5% as inflation pressures intensify

The National Bank of Ukraine (NBU) raised its key policy rate by 0.5 percentage points to 16.5% as price pressures increased and inflation expectations deteriorated, despite weakening economic activity. The increase aims to maintain the attractiveness of hryvnia assets and contain foreign exchange market pressures. Russian attacks on production and logistics, alongside higher fuel prices caused by the war in the Middle East, have pushed inflation above the NBU’s previous forecast. Headline inflation reached 10.0% in September compared with a year earlier, while core inflation rose to 8.8%. The NBU revised its inflation forecast for 2026 upward to 12.5%, with aerial attacks alone estimated to contribute about 0.7 percentage points. Inflation is projected to slow to 7.3% in 2027 as oil prices decline and monetary tightening takes effect, before returning to the 5% target in 2028. That return also depends on easing production costs and an expansion in domestic supply. The NBU lowered its 2026 real gross domestic product forecast to a contraction of 0.4%, reflecting damage from attacks and the sea port blockade. Growth is projected at 0.4% in 2027, assuming logistics improve from midyear, and 2.2% in 2028 as security risks subside. Continued international assistance remains crucial to financing budget needs and maintaining reserves. The policy forecast envisages keeping the rate at 16.5% until the second quarter of 2027, with adjustments depending on how Russian attacks affect inflation and economic activity.