Inflation is accelerating, the economy is slowing: what decisions the NBU and ECB made and how they will affect Ukrainians
Kyiv • UNN
The NBU raised its rate to 16.5% due to inflation and pressure on the hryvnia. The ECB left rates unchanged amid energy risks.
October 29 can confidently be called a day of important monetary decisions: two major financial regulators immediately announced their resolutions. The economic well-being of Ukrainians depends on them: the National Bank of Ukraine (NBU) and the European Central Bank (ECB). The NBU raised its key policy rate to 16.5%, while the ECB left its rates unchanged. In addition, both regulators highlighted the risks stemming from rising energy prices. What other key decisions did the financial regulators make, and how will they affect the daily lives of Ukrainians? UNN reports.
Why the NBU decided to raise its key policy rate
Until October 29, 2026, the key policy rate stood at 16%. The regulator now seeks to curb price growth, support hryvnia savings, and reduce pressure on the foreign exchange market. The NBU hopes that a higher rate will help support hryvnia savings and encourage banks to increase deposit yields.
In addition, as the financial regulator emphasizes, declining exports and the consequences of Russian attacks have increased pressure on the hryvnia. Therefore, the NBU expects higher returns on hryvnia savings to help stabilize the foreign exchange market.
Inflation in Ukraine exceeded the NBU's expectations: why did this happen
In September 2026, consumer inflation in Ukraine accelerated to 10% year-on-year, while core inflation, which reflects more persistent price changes, stood at 8.8%. According to the National Bank's estimates, the trend continued in October. The main reasons were higher fuel prices due to the war in the Middle East and Russian strikes on warehouses and logistics facilities. This increases business costs and intensifies price pressure on consumers.
The inflation forecast for 2026 was (raised, - ed.) to 12.5%. According to the NBU's estimates, the consequences of shelling alone will add about 0.7 percentage points to annual inflation.
For 2027, the NBU forecasts inflation of 7.3%, driven by an expected decline in oil prices and the effects of monetary policy. A return to the target of 5% is expected in 2028.
The NBU also took into account the risks of increased budget spending on defense and reconstruction, a labor shortage, and pressure on wages. At the same time, the regulator warns that a deterioration in the security situation could cool consumer demand and partially restrain inflation. The blocking of ports could lead to a short-term decline in purchase prices for certain products.
National regulator downgrades forecast for Ukraine's economy: what to expect next
Along with its decision on the rate, the NBU revised its assessment of economic dynamics. According to the regulator's preliminary calculations, real gross domestic product contracted by 0.5% in the third quarter compared with the same period last year. The reasons were the blockade of ports and Russian strikes on industry and logistics. Metallurgical and ore-producing enterprises suffered the greatest losses; the situation also deteriorated in other sectors.
For 2026, the NBU forecasts a 0.4% contraction in GDP and estimates the negative contribution of shelling at 1.9 percentage points. In 2027, the economy could grow by 0.4% according to its forecast, provided logistics improve; in 2028, it could grow by 2.2% if security risks decline. Growth will be supported by investment in the defense sector and infrastructure recovery.
What will happen to Ukrainians' deposits and loans
The change in the key policy rate will not affect the terms of all deposits and loans currently held by Ukrainians. At least, this will not happen immediately. Each bank will make such decisions independently and gradually.
The NBU notes that small banks were the first to respond to previous decisions. Recently, large institutions have also begun reviewing rates on hryvnia deposits. Ukrainians themselves continued to increase their hryvnia deposits and investments in domestic government bonds.
Lending has not stopped, however. According to the NBU, in September, the volume of net hryvnia loans to businesses increased by more than 32% year-on-year, while lending to households rose by 38%. The regulator also announced four packages of changes aimed at supporting lending to the defense industry, the energy sector, agriculture, and trade.
A moderate increase in the key policy rate is a balanced decision that makes it possible to maintain a balance between controlling inflation and supporting the economy
At the same time, the NBU forecasts that the rate will remain at 16.5% until the second quarter of 2027, but allows for a review if risks change.
International assistance for Ukraine: what is happening with it and why it remains important
In the third quarter, Ukraine received less international assistance than expected, primarily due to delays in reforms. The laws passed by parliament in October should help unblock funding from the EU and the IMF.
The NBU's forecast for 2026 envisages approximately $50 billion in direct budget support and more than $32 billion under the defense component of the Ukraine Support Loan program. For 2027, $52 billion and $37 billion, respectively, have been allocated. Under this scenario, Ukraine's international reserves are expected to exceed $62 billion in 2026–2027.
However, the NBU warns that official Kyiv may receive financial support unevenly. At the same time, the risk of delays has decreased somewhat recently following Ukraine's fulfillment of some of its obligations to partners and earlier signals regarding financing for next year.
What decisions did the European Central Bank make
On the same day, the ECB Governing Council left all three key interest rates unchanged. The deposit facility rate is 2.50%, the rate on main refinancing operations is 2.65%, and the marginal lending facility rate is 2.90%.
The ECB explained the pause by citing uncertainty. Higher energy prices threaten to accelerate inflation and slow economic growth, while the full impact of the energy shock has not yet emerged. According to the ECB, underlying price pressures remain relatively stable, and wages have so far not responded significantly to the energy shock. Financing conditions have tightened since the previous meeting.
The Governing Council is not committing in advance to any specific path for interest rates
The ECB's target is inflation of 2% over the medium term. However, future decisions will depend primarily on new data, forecasts, and risks.
At the same time, the ECB continues to gradually reduce its portfolios of securities purchased under the APP and PEPP programs: proceeds from maturing securities are no longer being reinvested. In addition, the ECB remains ready to use the available instruments if instability in financial markets hinders the transmission of its monetary policy across all euro area countries. In particular, a special transmission protection instrument has been provided for this purpose.
How the decisions of the two regulators differ
The NBU raised its rate amid accelerating inflation and risks to the hryvnia. The ECB left rates unchanged to assess the consequences of the energy shock for the euro area. However, it is not correct to directly compare Ukraine's 16.5% rate with the ECB's 2.5% deposit facility rate as indicators of borrowing costs. These are different instruments in different economies, with different inflation targets and risks.
For Ukrainian depositors, the key consequence of the NBU's decision may be continued support for hryvnia deposit rates. For borrowers, the cost of new loans will depend on banks' terms, while for businesses, the restoration of logistics, access to financing, and the security situation will also be important.
Let us remind you
Earlier, we reported that the NBU raised the official dollar exchange rate to a historic high.