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.