Ukraine's central bank lifts key rate to 16% as inflation accelerates to 10%
The NBU raised its rate by 0.5 point on 17 September; September inflation of 10.0% and a $5.4 billion intervention month frame its 29 October meeting.
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The National Bank of Ukraine (NBU) raised its key policy rate by half a percentage point to 16 per cent on 17 September, following an increase in July, and inflation data published since then show price growth running further above its forecast, according to the bank's decision and its September inflation update. The board meets again on 29 October.
The board cited persistent underlying price pressures, second-round effects from supply shocks and higher medium-term inflationary risks. It said the increase would support the attractiveness of hryvnia assets and the stability of the foreign exchange market and help bring inflation back towards its 5 per cent target within the policy horizon, according to the statement. The rate took effect on 18 September under board decision No. 313.
Inflation reaches 10%
When the board met, the latest reading showed consumer inflation at 8.1 per cent in August, slightly above the path in the July Inflation Report, driven mainly by fuel prices after the escalation of the war in the Middle East and by faster increases in some administered tariffs. Core inflation had remained high, and wages kept growing rapidly in July and August, the NBU said in its decision.
Data released on 12 October showed inflation accelerating to 10.0 per cent year on year in September, with prices up 2.1 per cent in the month, according to the NBU's inflation update. Headline inflation "significantly exceeded" the forecast path because of escalated Russian attacks on production, storage and logistics infrastructure and rising fuel prices. Fuel inflation reached 46.2 per cent, raw food inflation rose to 6.7 per cent and core inflation increased to 8.8 per cent, with processed food prices up 10.7 per cent, the bank said.
Reserves, interventions and aid
The NBU linked part of its decision to external financing. Official financing in July and August was smaller than expected, fiscal policy was more restrained and international reserves fell. Much of the international assistance is conditional on parliament adopting draft laws committed to under support programmes, and if those reforms are implemented in the coming months, external financing volumes "will mostly catch up", the statement said.
Reserves fell 3.2 per cent in September to $47,101.8 million on 1 October, according to preliminary data. The NBU sold $5,449.9 million on the foreign exchange market during the month. The government received $890.4 million through World Bank accounts and converted into hryvnia a $3.81 billion defence tranche from the EU under the Ukraine Support Loan, which increased reserves when sold to the central bank, according to the NBU's reserves release.
Foreign-currency debt service and repayments cost $195.7 million, and Ukraine repaid a further $254.3 million to the International Monetary Fund. Revaluation and other factors reduced reserves by $368.3 million. Reserves cover 4.0 months of future imports, which the bank said is sufficient to keep the currency market stable, according to the release.
What the bank said about its next move
The board said the July increase had already bolstered demand for hryvnia deposits and domestic government bonds, which limited pressure on the currency market, and that some banks, mostly small ones, had begun raising their own rates. It estimated that the September step would have no noticeable dampening effect on lending, noting that it is recording the longest period of credit expansion, according to the decision.
The NBU set out conditions in both directions. Should risks to prices and inflation expectations intensify significantly, it will be ready to deploy additional measures. If a deteriorating security situation leads to a noticeable slowdown in consumer demand and the labour market, it will consider easing, the statement said. It added that an increasing number of central banks are raising their key rates because of the global price environment.
The September inflation print, 1.9 percentage points above the August figure the board had in hand, is the main new information for the 29 October meeting. The bank said in September that inflation was expected to return to a declining trajectory in 2027, helped by its tighter policy.