Ukraine's NBU holds key rate at 15% amid inflation risks
The National Bank of Ukraine has decided to keep its key policy rate at 15 percent per annum. The central bank cited increased inflationary pressures and worsening inflation expectations as reasons for postponing further easing.
Inflationary pressures persist, easing postponed
The National Bank of Ukraine's Board has maintained its key policy rate at 15 percent per annum, postponing further easing of its interest rate policy.
This decision aims to support the attractiveness of hryvnia instruments, the sustainability of the FX market, and the controllability of expectations to ensure moderate inflation this year and bring it to its 5 percent target over the policy horizon.
Headline inflation accelerated slightly in February to 7.6 percent year-on-year, while core inflation stood at 7 percent.
Prices for fuel, services, and raw foods grew somewhat faster than expected.
Households' inflation expectations deteriorated significantly, likely due to the difficult situation in the energy sector and concurrent price increases for some everyday consumer goods.
The NBU stands ready to raise the key policy rate if risks increase.
Geopolitical risks weigh on outlook
The war in the Middle East has led to a surge in prices of petroleum products and natural gas, directly affecting domestic prices in Ukraine.
This external factor means the inflation trajectory in the coming months is likely to be somewhat above the NBU's January forecast.
Russian aggression remains the primary ongoing risk, threatening price dynamics and economic activity, with escalating global geopolitical confrontations intensifying in recent months.
Other significant inflationary risks include irregular or reduced international financing, additional budgetary needs for defense and reconstruction, and further escalation of external conflicts.
Despite these challenges, Ukraine has received USD 5.5 billion in official financing this year, and international reserves remained high at nearly USD 55 billion by the end of February, bolstering FX market stability.
Prudent pause in uncertain times
The NBU's decision to hold rates is a prudent pause, reflecting a necessary recalibration in the face of escalating external and domestic risks.
While previous forecasts envisaged further easing, the worsening inflation expectations and global energy price volatility necessitated a cautious stance.
This move prioritizes financial stability and anchors expectations, even if it delays the broader monetary policy normalization path.