The NBU raised the key policy rate to 16%: how this will affect hryvnia-denominated assets
Kyiv • UNN
The NBU raised the key policy rate by 0.5 percentage points to 16% due to persistent price pressures and war-related risks. Inflation reached 8.1% in August.
The Board of the National Bank of Ukraine decided to raise the key policy rate to 16% in view of persistent underlying price pressures, second-round effects from supply shocks, and increasing medium-term inflationary risks, UNN reports citing the NBU.
According to the National Bank, this decision will support the attractiveness of hryvnia assets and the resilience of the foreign exchange market, making it possible to keep inflation expectations under control and return inflation to a trajectory of sustained decline toward the 5% target over the policy horizon.
Due to the consequences of Russia’s aggression and the war in the Middle East, inflationary pressures remain elevated
In August 2026, consumer inflation accelerated to 8.1% year-on-year, slightly exceeding the trajectory projected in the NBU’s July forecast. This price dynamics was primarily driven by a more substantial-than-expected increase in fuel prices amid the escalation of the war in the Middle East. In addition, certain regulated tariffs rose at a faster pace, which was largely due to the consequences of Russian attacks on critical infrastructure.
Core inflation remained high in recent months. Underlying price pressures are being fueled by continued increases in businesses’ production costs, particularly for electricity, logistics, and labor. Inflation expectations among economic agents also remained elevated.
Despite the consequences of Russian attacks, the labor market and consumer demand remained resilient. In particular, average wages continued to grow at a high rate in July and, according to the NBU’s estimates, in August, supporting underlying price pressures.
Inflation is expected to begin slowing in 2027
Inflation may follow a somewhat higher trajectory in the coming months than forecast previously by the NBU. Inflationary pressures will be fueled by the consequences of Russia’s intensified attacks on logistics, production, and energy infrastructure facilities. In addition, prices will be affected by fuel becoming more expensive than previously expected.
The impact of global price conditions remains inflationary, particularly in view of developments in the Middle East. Against this backdrop, an increasing number of central banks are raising their key policy rates.
At the same time, inflation will likely be constrained by ample food supply on the domestic market, including due to difficulties exporting crops via the Black Sea.
Inflation is expected to return to a trajectory of decline in 2027, including as a result of the NBU’s measures to tighten monetary policy.
External assistance remains critically important
The NBU is taking into account the government’s statements regarding increased risks to the sustainability of public finances. Against the backdrop of lower-than-expected official financing in July–August, fiscal policy was more restrained, while international reserves declined.
At the same time, a significant portion of international assistance is tied to the pace of reforms. This primarily concerns the parliament’s adoption of a number of draft laws in line with Ukraine’s commitments under support programs. Provided they are implemented in the coming months, external financing volumes will largely be made up.
Restoring the regularity and adequacy of international assistance is critically important for the sustainability of public finances and ensuring price stability.
The NBU added that the course of the full-scale war remains the key risk to inflation dynamics and economic development. Disruptions to the regularity of international financing, failure to receive previously planned volumes of international funding, and a prolongation of hostilities in the Middle East could also have a significant impact.
The war continues. The intensification of Russia’s targeted attacks on production and infrastructure facilities is increasing medium-term inflationary risks.
Other risks related to the course of the war also remain relevant, including:
- the emergence of additional budgetary needs to maintain defense capabilities and rebuild the country, accompanied by a corresponding expansion of domestic demand, particularly for imports;
- increased wage pressures as a result of the deepening labor shortage and negative migration trends.
At the same time, a deterioration in the security situation could lead to a cooling of consumer demand and the labor market, which, conversely, would have a disinflationary effect.
Since the July macroeconomic forecast, the risks associated with the war in the Middle East have also increased, primarily those related to higher oil prices. Expensive energy resources constrain economic growth in Ukraine while simultaneously fueling Russian aggression.
At the same time, there remains potential for a more favorable development of events associated with stronger military and financial support from international partners and the achievement of substantial progress in ensuring a just and lasting peace for Ukraine.
To maintain the attractiveness of hryvnia assets, the resilience of the foreign exchange market, and the manageability of expectations, as well as to gradually bring inflation to the 5% target over the policy horizon, the Board of the National Bank of Ukraine decided to raise the key policy rate by 0.5 percentage points to 16%
The July increase in the key policy rate supported the attractiveness of hryvnia assets. In response to the NBU’s tighter interest-rate policy, some banks, mostly smaller ones, have already begun raising their rates. As a result, demand for both hryvnia deposits and domestic government bonds remained strong, limiting pressure on the foreign exchange market and containing price growth.
The additional increase in the key policy rate will support these positive trends, which is important amid sustained underlying price pressures and growing medium-term inflationary risks. Tighter monetary policy will help maintain the manageability of inflation expectations, facilitate the return of inflation to a downward trajectory, and support its further movement toward the 5% target.
According to the NBU’s estimates, this step will not have a significant restraining effect on lending. The NBU is recording the longest period of credit expansion. To provide additional support to businesses amid intensified shelling, the NBU adopted two packages of regulatory decisions to expand access to financing. Work on further measures is ongoing.
The NBU is ready to respond flexibly to further changes in the distribution of risks
In the event of a substantial increase in risks to price dynamics and inflation expectations, the NBU will be ready to take additional measures to contain inflation. However, if a deterioration in the security situation in the coming months leads to a noticeable cooling of consumer demand and the labor market, the NBU will consider the possibility of easing monetary conditions.
The minutes of the discussion among members of the Monetary Policy Committee that preceded the National Bank Board’s adoption of this decision will be published on September 28, 2026.