The National Bank Raised the Discount Rate: What Will Happen to Inflation?
30 July 15:19
The Board of the National Bank of Ukraine has decided to raise the discount rate from 15% to 15.5% per annum. This was announced by NBU Governor Andriy Pyshnyy, according to "Komersant Ukrainian"
“The increase in the discount rate is aimed at maintaining the attractiveness of hryvnia-denominated assets, the stability of the foreign exchange market, and the containment of inflation expectations, which will make it possible to return inflation to a downward trajectory toward the 5% target as early as 2027,” the NBU Governor noted.
Andriy Pyshnyy also stated that the regulator is prepared to continue using monetary policy tools, including further tightening monetary policy, if necessary to curb inflationary pressures.
Why the NBU Raised Rates
According to the National Bank, consumer inflation slowed to 7.2% year-over-year in June thanks to an increase in the supply of raw food products. At the same time, core inflation, which better reflects underlying price trends, accelerated to 8.1%, exceeding the regulator’s forecast.
The NBU explained that in recent months, underlying inflationary pressures have become more persistent due to rising business costs for logistics, labor, and energy. Although inflation expectations remain relatively stable, they are still elevated.
Inflation Will Accelerate
The National Bank expects that as early as July, headline inflation began to rise again, while core inflation continued to accelerate. The updated forecast projects that by the end of 2026, consumer inflation will stand at 10%, and core inflation at 9.2%.
“This trend will be driven by expanded fiscal stimulus, further growth in businesses’ labor costs, as well as secondary effects from rising fuel prices and the depreciation of the hryvnia in previous periods,” the regulator explained.
The NBU attributes this to the expansion of fiscal stimulus measures, further growth in businesses’ labor costs, and secondary effects from rising fuel prices and the previous weakening of the hryvnia.
At the same time, the regulator forecasts that inflation will slow to 6.9% in 2027 and return to the 5% target by the end of 2028. This is expected to be driven by a reduction in the budget deficit, a narrowing of labor market imbalances, better harvests, an improvement in the energy sector, and the effects of tighter monetary policy.
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The NBU has upgraded its economic growth forecast
Despite mounting inflationary pressures, the National Bank has improved its economic growth forecast. According to the regulator’s estimates, Ukraine’s real GDP grew by 0.8% year-over-year in the second quarter. The recovery was driven by the stabilization of the power grid and an increase in government spending following a reduction in uncertainty regarding international financial aid.
At the same time, economic growth continues to be hampered by intense Russian attacks on logistics infrastructure, the energy sector, and business facilities.
Given the large-scale fiscal stimulus, the localization of arms production, and an expected better harvest, the NBU has raised its forecast for Ukraine’s real GDP growth in 2026 to 1.8%.
In 2027–2028, the regulator estimates that the economy will grow by approximately 3% annually thanks to increased investment, the development of the defense-industrial complex, the stabilization of the energy sector, and the recovery of agricultural production.
Most financial market participants predicted ahead of the meeting that the NBU would keep the discount rate at 15%, as there are currently no significant reasons to change monetary policy.
What Is the Policy Rate For?
The discount rate is the NBU’s primary monetary policy tool. It affects the cost of funds for banks and, consequently, interest rates on loans and deposits, as well as the yields on certain financial instruments.
Its level is also one of the factors influencing inflation, the foreign exchange market, and the attractiveness of hryvnia-denominated assets.
As a reminder, in January 2025, the discount rate was raised to 14.5%, and in March—to 15.5%. It remained at this level until the end of 2025. In January 2026, the National Bank began a new cycle of monetary easing, lowering the rate to 15%. In March and April, the regulator left it unchanged.
It was last reviewed in June, when the regulator also decided not to change monetary policy parameters. At that time, the NBU explained the decision by the need to keep inflation under control, support the stability of the foreign exchange market, and maintain the attractiveness of hryvnia savings.
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