Summary of Key Policy Rate Discussion by NBU Monetary Policy Committee on 16 April 2025

Meeting date: 16 April 2025.

Attendees: all 11 members of the Monetary Policy Committee (MPC) of the National Bank of Ukraine:

• Andriy Pyshnyy, Governor of the National Bank of Ukraine
• Kateryna Rozhkova, First Deputy Governor
• Yuriy Heletiy, Deputy Governor
• Yaroslav Matuzka, Deputy Governor
• Sergiy Nikolaychuk, Deputy Governor
• Dmytro Oliinyk, Deputy Governor
• Oleksii Shaban, Deputy Governor
• Pervin Dadashova, Director, Financial Stability Department
• Volodymyr Lepushynskyi, Director, Monetary Policy and Economic Analysis Department
• Oleksandr Arseniuk, Director, Open Market Operations Department
• Yuriy Polovniov, Director, Statistics and Reporting Department.

The MPC members discussed the effectiveness of previous interest rate policy measures aimed at slowing inflation and elaborated on the main factors behind, and the first signs of, subsiding price pressures. Considerable focus was placed on the analysis of risks associated with the war and the escalation of trade and political standoffs around the globe, as well as on the optimal combination of monetary policy measures intended to put inflation back on a sustainable downward-sloping trajectory leading to the NBU’s 5% target.

In recent months, consumer inflation has increased as expected (to 14.6% yoy in March), coming rather close to the trajectory of the previous macroeconomic forecast (January 2025 Inflation Report), the discussion participants said. Significant underlying price pressures also persisted (NBU March 2025 Inflation Update). However, inflation showed the first signs of running out of momentum, as evidenced by a monthly downtrend in seasonally adjusted inflation. This result was partly facilitated by the NBU’s measures to ensure sustainable conditions in the FX market in an effort that restrained price pressures and led to a visible improvement in households’ exchange-rate and inflation expectations. Attention to inflation topics has declined significantly in recent months from this year’s peak levels, according to Google Trends data. Inflation expectations of businesses and banks remained relatively sustainable overall, but deteriorated somewhat in Q1 2025 from Q4 2024.

Better FX market conditions and stepped-up foreign aid disbursements had by the end of March brought Ukraine’s international reserves to USD 42.4 billion. Ukraine is expected to receive record amounts of external financial assistance this year (about USD 55 billion), primarily due to expedited disbursements under the ERA Loans program. Reserves will thus remain at a high level, and the NBU will continue to ensure a sustainable situation in the FX market by compensating for the FX deficit in the private sector and smoothing out excessive exchange rate fluctuations.

The escalation of trade conflicts in the world in early April did not have a significant impact on the Ukrainian economy or FX market. Direct losses from the U.S.-imposed 10% tariff are expected to be marginal, as the U.S. accounts for only 2.2% of Ukraine’s merchandise exports. Moreover, given the low tariff burden compared to that borne by other countries, one can expect Ukrainian goods, including metals-and-mining products, to remain competitive in the American market. Ukraine’s indirect losses from the trade wars may be related to a possible narrowing of global aggregate demand, but this effect has yet to materialize, while oil has already fallen in price amid an anticipated cooling of the world economy, generating an additional disinflationary impulse.

By NBU estimates, inflation is about to peak. Price growth is expected to start slowing year-on-year for a wide range of goods and services as soon as summer. Lower global energy prices will drive the inflationary momentum down, as will measures taken by the NBU, an expansion of the food supply as the new harvest arrives on the market, a lower power deficit than a year ago, and more-moderate pressure from the labor market.

However, significant risks to price developments are still there, primarily due to the war’s consequences. Specifically, there is a considerable probability of additional budget spending on defense and other urgent purposes, such as the need to rebuild critical facilities. russian aerial strikes against infrastructure, including gas facilities, impede economic growth, compound the need for gas imports, and increase production costs incurred by businesses, among other consequences. By targeting civilians in its missile and drone attacks, russia is fueling migration and putting additional pressure on the labor market. High uncertainty is exacerbated by growing geopolitical tensions, including those around the issue of achieving a just and lasting peace for Ukraine.

MPC members unanimously supported maintaining the key policy rate at 15.5%

With overall inflation developments being close to the forecast, price pressures demonstrating early signs of easing off, and inflation expectations being relative sustainable, there is more confidence in an upcoming reversal of the uptrend in price growth, the MPC members said. Furthermore, the NBU’s previous measures to maintain the public’s appetite for hryvnia assets and the sustainability of the FX market have been effective. Accordingly, there is currently no need for a further tightening of interest rate policy. At the same time, the MPC members agreed that it would also be premature to ease monetary policy at this time. For such a loosening to be justified, inflation would need to return to a sustained slowdown from current high levels. Under existing conditions and with the balance of risks being what it is now, maintaining the key policy rate at 15.5% will therefore allow the NBU to keep an optimal balance between ensuring the controllability of inflation processes and supporting the economic recovery.

Continuing to pursue a prudent monetary policy will boost existing positive trends, further improve the expectations of economic agents, and reduce underlying price pressures, all of which eliminates the risk of inflation settling in double-digit territory, the MPC members said. According to the updated macroeconomic forecast, the current level of the key policy rate, reinforced by the calibration of interest rate policy’s operational design parameters and accompanied with further steps to maintain the sustainability of the FX market, will ensure that monetary conditions are sufficient to reverse the inflation uptrend as early as H2 2025. At the end of 2025, consumer inflation is expected to slow to 8.7% yoy, and in 2026, to the 5% target.

It is too early to draw final conclusions about the impact of trade warfare on the Ukrainian economy, but we can talk about both potential challenges and new opportunities, the discussion participants said. On the one hand, trade and political confrontations may narrow external demand for Ukrainian goods and also degrade the ability of partner countries to financially support Ukraine amid a cooling of their economies. On top of that, the strengthening of the euro amid a more significant cooling of the U.S. economy and a potential weakening of the dollar’s role in the world will exert pressure on the prices of a number of consumer goods imported by Ukraine. On the other hand, the effects of tariff wars will be mitigated by the structural features of the Ukrainian economy. In particular, the cooling of global economic activity is expected to be accompanied by a decrease in prices for imported energy, but demand for food – the staple of Ukrainian exports – will remain sustainable. In addition, the rerouting of commodity flows away from the U.S. market and toward other countries will ramp up competition for buyers, likely putting downward pressure on the prices of imported goods.

One MPC member said that the impact of tariff wars on economic and inflationary developments in Ukraine will be moderate, given how rapidly Ukrainian companies can adjust to difficult situations. During the full-scale invasion, domestic businesses have encountered and successfully met multiple challenges related to reconfiguring their supply chains and tapping into new markets. The improvement in business expectations in Q1 is a good signal and a possible indicator that enterprises are prepared to face off against new turbulence in external markets. In this context, keeping the key policy rate unchanged will support the recovery of lending going forward.

However, another participant said, a final configuration of new commercial and political relations in the world is still in the future, and so the NBU should continue to take a wait-and-see approach, closely watch how events play out, and maintain moderate restraint in monetary policy issues. Considering the high uncertainty over external financing for 2026–2027, the NBU should take a savings-oriented approach to international reserves. Among other methods, reserves can be saved by maintaining the right level of attractiveness of hryvnia assets and ensuring the sustainability of the FX market.

In this regard, several MPC members immediately drew attention to the fact that the transmission of the key policy rate hikes made in December–March intensified in March–April. Considering that changes to the operational design (including additional incentives for banks to attract hryvnia retail term deposits) took effect as late as early April, we can expect these developments to continue into the coming months. Such confidence is bolstered by the dynamics of the Ukrainian Index of Retail Deposit Rates.

The growth in yields on domestic government debt securities and term deposits, including those of banks that lead the way in the retail market, has become one of the important factors in rekindling the appetite for hryvnia savings. Specifically, monthly nominal increases in hryvnia retail deposits with maturities over 92 days rose materially in March–April across all groups of banks. The portfolio of hryvnia domestic government debt securities held by households grew 10% in Q1 2025. Households’ aggregate net demand for term deposits and domestic government debt securities in March was the highest in the last 10 months.

Coupled with a seasonal slump in FX demand, stronger appetite for hryvnia instruments helped ease pressure on the hryvnia exchange rate and international reserves. According to the updated macro forecast, the NBU will retain its high capacity to maintain the sustainability of the FX market. Keeping the FX market sustainable will assist in mitigating price pressures both directly and through the expectations channel.

One MPC member said that maintaining the key policy rate at 15.5% will generally meet financial analysts’ expectations and not take market participants by surprise, although many experts are predicting a further tightening of interest rate policy. Even as the consensus expectations of financial analysts regarding end-2025 inflation are overall in line with the NBU’s updated macro forecast, they do anticipate a slightly higher key policy rate.

MPC members expect a return to a cautious easing of interest rate policy only after the price surge has peaked and risks of inflation becoming stuck in the double digits have abated

The NBU will be able to resume the cycle of reducing its key policy rate in H2, the discussion participants said. Meanwhile, several MPC members emphasized that the NBU should continue to pursue a prudent approach instead of rushing to ease interest rate policy immediately after the price surge gets over its formal peak. It is feasible to first make sure that a downtrend in inflation is sustainable and that there is no threat of it staying in double-digit territory for too long, they said. 

In light of mounting geopolitical uncertainty and significant risks associated with the war’s impact, the MPC members said they see limited room for loosening interest rate policy and expect the key policy rate to be around 13% by the end of 2025. What is more, they did not rule out the possibility of maintaining the key policy rate at the current level for longer than the new macro forecast projects, or of applying additional monetary policy measures in the event that high inflation is protracted and risks of expectations becoming unanchored rise.