Ukraine: Central Bank decides to hold in December
Bank holds, as expected: At its meeting on 11 December, the National Bank of Ukraine (NBU) decided to keep its policy rate unchanged at 15.50% for the sixth consecutive meeting. As such, the policy rate remained at its highest level since November 2023. The decision matched market expectations.
High inflation and uncertainty over funding drive the decision: The Central Bank’s decision to keep interest rates unchanged reflected three main needs: Contain inflation, preserve the attractiveness of hryvnia-denominated assets and reduce uncertainty over external financing in the coming years. Regarding inflation, although price pressures have eased faster than expected, the slowdown was driven largely by increased food supply following the harvest; persistently high inflation expectations point to underlying pressures. Regarding hryvnia-denominated assets, maintaining the key policy rate unchanged will prevent a decrease in interest rates on hryvnia instruments. Finally, the NBU highlighted that uncertainty over external financing for 2026 and 2027 persists as negotiations to obtain EU funds continue.
NBU to ease ahead: The Central Bank did not provide explicit forward guidance. That said, most panelists expect the easing cycle to resume in Q1 2026 as inflation continues to ease. Moreover, according to some panelists, the Bank will likely start to favor a relatively weak currency to help relieve pressure on fiscal and external balances.
The Bank will reconvene on 29 January.
Panelist insight: Commenting on the outlook, EIU analysts stated:
“We expect the bank to cut the key rate […] at its next meeting […]. We see almost no risk of a rise and a small risk of a hold should inflation expectations unexpectedly rise or additional inflationary pressures emerge from greater spending and investment, or from Russian strikes against infrastructure.”