Financial sector news

The National Bank's Board decided to keep the key policy rate at 15.5%. This will help keep the currency market stable and inflation expectations under control, which will help inflation get back on track for a steady slowdown. If threats to a sustained decline in inflation to the 5% target intensify, the NBU will keep the key policy rate unchanged for longer than envisaged in the April macro forecast.

Inflation in May likely reached its local peak

In April, inflation accelerated to 15.1% year-on-year. NBU estimates indicate further growth in annual inflation in May, which slightly exceeded the current forecast trajectory. Food prices were additionally affected by spring frosts, which impacted the cost of the first batches of vegetables and fruits from the new harvest. However, after slowing down in April, core inflation continued to accelerate in May, close to the forecast, according to the NBU's estimates. As before, fundamental inflationary pressures were fueled by sustained consumer demand and further increases in business production costs, particularly labor costs.

Although economic agents' inflation expectations deteriorated somewhat, they remained fairly stable and significantly below the current inflation rate. Search query statistics also indicated a further decline in attention to the topic of inflation. These trends were supported by the NBU's measures to protect hryvnia savings from inflationary depreciation and maintain currency market stability.

Inflation will gradually slow down in the future

In the summer, inflation will begin to decline across a wide range of goods and services and will gradually move toward the 5% target. This will be facilitated by new harvests, a better situation in the energy sector than last year, lower global oil prices and easing external price pressures, as well as the continued impact of the NBU's monetary policy measures. Last year's high base of comparison for administratively regulated prices will also have a significant statistical effect, in particular due to the one-off increase in electricity tariffs in June 2024.

At the same time, the trajectory of inflation deceleration in the coming months will largely depend on the impact of spring frosts and summer weather conditions on the supply and prices of agricultural products.

External financing is expected to be sufficient to maintain macrofinancial stability.

Since the beginning of the year, Ukraine has received US$18 billion in official financing. Regular inflows of external assistance make it possible to finance critical budget expenditures and maintain adequate international reserves and, accordingly, a stable situation on the foreign exchange market. The NBU expects that a significant level of international support will continue. This will be facilitated, in particular, by the achievement of a staff-level agreement on the eighth review of the Extended Fund Facility program with the IMF.

The key risk to inflation dynamics and economic development remains the course of full-scale war

 The war continues. russian aggression continues to threaten a long-term decline in the country's economic potential, particularly due to the loss of people, territories, and production facilities. The speed at which the economy returns to normal functioning will depend on the nature and duration of the hostilities.

 The main risks caused by russian aggression remain unchanged:

•  additional budgetary needs, primarily to maintain defense capabilities;
• further damage to infrastructure, especially energy infrastructure;
• deepening negative migration trends and widening labor shortages in the domestic labor market.

A separate significant risk to inflation and economic development is the negative impact of weather conditions on this year's harvests, which is more significant than currently estimated.

Risks associated with potentially less favorable external conditions amid heightened geopolitical uncertainty and deglobalization are also relevant. So far, trade and political confrontations have not had a significant impact on the Ukrainian economy and have even partially supported it due to lower oil prices. However, further escalation of trade disputes between countries could significantly weaken the global economy, leading to a decline in external demand and posing threats to the regularity of international financing.

At the same time, there is still a possibility of a number of positive scenarios. These are primarily related to increased financial support from partners (in particular through the use of the principal amount of frozen Russian assets) and efforts by the international community to ensure a just and lasting peace for Ukraine. Further acceleration of European integration processes and infrastructure reconstruction, including energy infrastructure, is also possible.

To maintain currency market stability, keep expectations under control, and gradually bring inflation down to the 5% target over the policy horizon, the National Bank of Ukraine's Board decided to keep the key policy rate at 15.5%.

Previous measures taken by the NBU to tighten monetary policy contributed to a noticeable revival of interest in term hryvnia savings. Thus, while at the beginning of the year the monthly growth of hryvnia deposits of the population for a term of more than 3 months did not exceed UAH 2 billion, in March it increased to UAH 4 billion, and in April-May – to UAH 5-6 billion. Overall, from the beginning of the year to the end of May, such term deposits of the population increased by UAH 19 billion, and investments in hryvnia-denominated government bonds increased by UAH 11 billion. The term of hryvnia savings also improved, with increased interest in deposits for 6–12 months, as well as long-term government bonds.

The growth in hryvnia investments contributed to a significant reduction in the population's net demand for foreign currency (to about USD 0.2 billion in April and May compared to USD 1.5 billion in January), which mitigated the effect of the seasonal increase in enterprises' demand for foreign currency. This was an important factor in maintaining stability in the currency market and controlling expectations, and, accordingly, in curbing price pressures.

The reduction in risks to macrofinancial stability and international reserves occurred without any noticeable dampening effect on lending. Interest rates on new business loans have generally increased slightly and remain at pre-crisis levels. The growth rate of net hryvnia lending to businesses accelerated in April to almost 30% y/y from 21% y/y in February.

Maintaining the key policy rate at 15.5% will allow us to continue to provide appropriate monetary conditions for reversing the inflationary trend in the coming months. At the same time, this decision is not expected to have a negative impact on lending dynamics.

If threats to a sustained decline in inflation to the 5% target intensify, the NBU will keep the key policy rate unchanged for longer than envisaged in the April macro forecast.

Easing of interest rate policy will only be possible after the peak of the price surge has passed and the risks of inflation remaining at a high level have decreased. At the same time, if there is a need to tighten monetary conditions, the NBU will be ready to take additional measures.

The decision to keep the key policy rate at 15.5% per annum was approved by the National Bank of Ukraine's Board on June 5, 2025, under Resolution No. 180-рш “On the Key Policy Rate,” which takes effect on June 6, 2025.

The results of the discussion of the Monetary Policy Committee members, which preceded the adoption of this decision by the Board of the National Bank, will be published on June 16, 2025.

The next meeting of the Board of the National Bank on monetary policy issues will be held on July 24, 2025, in accordance with the approved and published schedule.