National Bank of Ukraine Raises Key Policy Rate by 50 Basis Points to 16%

The Board of the National Bank of Ukraine (NBU) raised the key policy rate by 50 basis points to 16%, citing persistent underlying price pressures, second-round effects from supply shocks and higher medium-term inflation risks, while seeking to return inflation toward the 5% target. Over the past year, the NBU held the rate at 15.5% in Q4 2025, cut it by 50 basis points to 15% in January, held through June and reversed that cut in July before the latest increase. The move aims to sustain the attractiveness of hryvnia assets and FX market stability. Consumer inflation accelerated to 8.1% year on year in August, slightly exceeding the July forecast as fuel prices and administered tariffs rose, while underlying pressures remained elevated by energy, logistics and labor costs. Credit expansion is at its longest on record, and the NBU expects no noticeable dampening of lending from the increase. Smaller-than-expected official financing in July and August reduced international reserves, making regular and sufficient external assistance crucial for macrofinancial stability. Russia’s attacks and the war in the Middle East, particularly higher oil and fuel prices, pose risks to inflation and growth, although ample domestic food supply should restrain prices. The NBU expects inflation to resume declining in 2027 and stands ready to tighten further if price and expectations risks intensify, or consider easing if a worsening security situation noticeably weakens consumer demand and the l