Regular version of site
Skip to content
About Monetary Policy

The NBU’s monetary policy prioritizes achieving and maintaining price stability. Price stability implies a moderate increase in prices, not their immutability.

Low and stable inflation protects the incomes and savings of Ukrainian households from depreciation and enables entrepreneurs to make long-term investments in the domestic economy, creating jobs.

The NBU ensures price stability by targeting inflation and by using the floating exchange rate of the hryvnia. The NBU’s monetary policy relies on the key policy rate as its main instrument.

Monetary Policy Objectives

The primary goal of the NBU’s monetary policy is to maintain price stability, meaning low and stable inflation.

Price stability is a situation in which prices grow so insignificantly that people do not incorporate inflation in their borrowing, investment, and savings decisions.

The NBU also promotes financial stability and sustainable economic growth unless it compromises the price stability objective.

Inflation targeting

In order for inflation targeting to work, the following conditions must be met:

  • the central bank publicly announces its quantitative targets for inflation
  • the central bank commits to meet its inflation targets
  • the main instrument of monetary policy is the key policy rate
  • the exchange rate is flexible
  • the central bank informs the public in a clear and transparent manner about the motivation behind its decisions
  • the central bank influences inflation expectations.

Inflation targeting has proven effective in countries with operating conditions similar to Ukraine’s. In particular, it helps reduce inflation and stabilize economic growth. The NBU applies an inflation targeting approach in order to best facilitate Ukraine's sustainable economic growth.

Key policy rate

To meet its inflation targets, the NBU adjusts its key policy rate. By changing the key policy rate, the NBU influences short-term interest rates in the interbank market.

This affects the interest rates on loans and deposits that banks offer to businesses and households. At the same time, this impacts consumption and investment by individuals and businesses, thus affecting inflation. This relationship between the key policy rate and inflation is called the transmission mechanism.

Monetary policy measures take time to have an effect on the economy and inflation. This is why monetary policy is always aimed at the future.

The NBU’s decisions on the key policy rate are based on the inflation forecast rather than the current trend.

The NBU openly communicates its inflation forecast to the public in the Inflation Report.

Floating exchange rate of the hryvnia

The floating exchange rate of the hryvnia allows the Ukrainian economy to adapt to changes in the external and internal environment and to absorb negative shocks.

For precisely this reason, the NBU has introduced the floating exchange rate regime. Under a floating exchange rate regime, the demand for and supply of foreign currency determines the exchange rate.

The NBU does not aim to maintain the foreign exchange rate at a certain level.

The regulator does not counteract the market factors that determine the foreign exchange rate but rather conducts FX interventions in the FX market to smooth out excessive volatility, accumulate international reserves, and meet other strategic objectives.