NBU raises key rate to 16.5% and cuts forecast: 12.5% inflation, GDP to shrink

The decision

On 29 October the board of the National Bank of Ukraine decided to raise the key policy rate from 16% to 16.5%, effective 30 October. Governor Andrii Pyshnyi cited “a significant increase in price pressure and a deterioration in inflation expectations.” He said the move should keep hryvnia assets attractive and support stability in the currency market.

It is the second hike in a row: on 17 September the NBU raised the rate from 15.5% to 16%. The bank links the tightening to falling exports caused by Russian attacks and to delays in international financing after Ukraine fell behind on several reforms. At the same time it says it is ready to “respond flexibly” to changes in risks — both persistent inflation and weaker economic activity.

Inflation: 12.5% this year

The inflation forecast for 2026 was raised to 12.5%. In September consumer prices were up 10% year on year. The NBU estimates that the consequences of Russian shelling alone will add about 0.7 percentage points to annual inflation. Other factors include more expensive fuel and larger budget stimulus.

In 2027 the bank expects inflation to slow to 7.3%, helped by lower global oil prices and monetary policy. A return to the 5% target is still projected for 2028. A likely cooling of domestic demand and the labour market after the attacks should also restrain prices.

The economy: from growth to contraction

The most painful change is the GDP forecast. Its previous forecast saw growth of 1.8%; now it projects a 0.4% contraction for 2026. Real GDP already fell by 0.5% in the third quarter, hit by the blockade of seaports and strikes on production and logistics. Metallurgy and mining suffered most, but trade, other industry and agriculture also weakened.

The NBU estimates the negative contribution of intensified shelling at 1.9 percentage points of GDP. It expects a slow recovery of 0.4% in 2027 and 2.2% in 2028, supported by investment in the defence industry, localised weapons production financed by the Ukraine Support Loan and the rebuilding of critical infrastructure.

A new lending package

The NBU also approved measures to make credit easier for businesses. Banks will be able to count as collateral the rights to revenue under contracts with public authorities and budget-funded bodies. The liquidity coefficient for such collateral rises from 0.3 to 0.75 for contracts with state payers and to 0.60 for those with local governments. The rule applies during martial law and for 90 days after it ends.

What it means for people

The NBU insists it does not want to slow the economy further: “A moderate increase in the key rate is a balanced decision that keeps a balance between controlling inflation and supporting the economy.” It promises more regulatory packages to support lending to defence companies, energy, agriculture and trade.

Higher rates usually mean costlier new loans but better returns on hryvnia deposits and government bonds. For households the main risk is prices: the NBU explicitly links the new wave of inflation to attacks on energy and industry.