The NBU raised the key policy rate to 13.5%

The NBU raised the key policy rate to 13.5%

The National Bank of Ukraine has increased its key interest rate due to rising inflation. This may not be the last increase.

The National Bank decided to raise the key rate from 13% to 13.5% annually, reported NBU Governor Andriy Pyshnyi.

Previously, the National Bank had forecasted that the rate would remain at the previous level until the middle of next year.

"This decision is aimed at maintaining the stability of the currency market, controlling inflation expectations, and gradually slowing down inflation," he stated.

The State Statistics Service recorded inflation in November at 11.2% year-on-year, while the latest National Bank forecast was 9.7%.

"In the coming months, year-on-year inflation is likely to continue rising under the influence of factors such as the supply of food products, significant budget expenditures, substantial wage growth, and increased energy shortages during the heating season. However, inflation should slow down going forward due to the gradual improvement in the energy sector situation and increased harvests. Measures of the NBU’s monetary policy and the expected weakening of external price pressure will also have an effect," Andriy Pyshnyi stated.

Deputy Governor of the National Bank Serhiy Nikolaychuk reported that the NBU had abandoned its inflation forecasts for the end of 2024 after the current forecast of 9.7% was not met.

"We are not ready to name a specific figure, but inflation will be higher than we expected," said Nikolaychuk.

Pyshny noted that the war poses risks for further reduction of economic potential, particularly through the loss of people, territories, and production. He stated that the economic recovery will depend on the nature and duration of hostilities.

Pyshny outlined the main economic risks:

1. The emergence of additional budgetary needs, primarily for defence support.

2. Possible tax increases, which, depending on the parameters, may exacerbate price pressure.

3. Further damage to infrastructure, primarily energy and ports, which will limit economic activity and exert pressure on prices from the supply side.

The head of the National Bank also indicated that there might be a new increase in the interest rate.

"The NBU will continue to tighten its interest rate policy at upcoming board meetings if signs of sustained inflationary pressure and risks of inflationary expectations’ imbalances persist," Pyshnyi noted.

He also said that in December 2024, Ukraine expects to receive about $8.5 billion within the framework of international aid.