NBU raises key policy rate to 14.5%

The Board of the National Bank of Ukraine (NBU) has decided to raise the key policy rate to 14.5% per annum effective January 24.

“This decision is aimed at maintaining the stability of the foreign exchange market, keeping inflation expectations under control, reversing the inflation trend and gradually slowing inflation to the 5% target. Containing price pressure is likely to require further tightening of interest rate policy,” the regulator said in a statement.

As noted, in 2024, inflation accelerated to 12% year-on-year. Price pressure will continue in early 2025.

According to the regulator, inflation’s rise to a double-digit level has a negative impact on inflation expectations of households and businesses. However, the expectations of financial analysts and banks remain relatively stable.

In the first months of 2025, inflation is likely to continue to rise due to the continued influence of both temporary factors, such as the effects of last year’s lower harvests, and fundamental factors, such as pressure from business production costs. The NBU expects inflation to peak in the second quarter and begin to decline in the middle of the year.

Inflation is expected to slow to 8.4% by the end of 2025, and to the 5% target in 2026.

According to the NBU, Ukraine’s real GDP grew by 3.4% last year, which is less than the October forecast. Economic growth slowed compared to 2023. In addition to lower harvests and weaker-than-expected external demand, the risks of increased hostilities, intensified Russian air attacks, and the resulting electricity shortages were among the reasons. In addition, there was a significant shortage of labor.

Taking into account security risks and the situation on the labor market, the NBU lowered its real GDP growth forecast for 2025 to 3.6%. At the same time, the regulator’s baseline scenario still assumes a gradual return of the economy to normal operating conditions. Accordingly, in 2026-2027, economic growth is expected to moderately accelerate to about 4%.

In December 2024, the NBU raised its key policy rate by 0.5 pp to 13.5% per annum. At the time, the market expected it to remain at 13%.