Summary of Key Policy Rate Discussion by NBU Monetary Policy Committee on 22 October 2025

Meeting date: 22 October 2025.

Attendees: all 10 members of the Monetary Policy Committee (MPC) of the National Bank of Ukraine:

• Andriy Pyshnyy, Governor of the National Bank of Ukraine
• Sergiy Nikolaychuk, First Deputy Governor
• Yuriy Heletiy, Deputy Governor
• Yaroslav Matuzka, 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 factors behind the slowdown in inflation, changes in the distribution of risks to future price dynamics, and the monetary conditions necessary to maintain the controllability of inflation expectations and a sustained movement of inflation toward its 5% target over the policy horizon

The deceleration of consumer inflation continues to outrun the NBU’s forecast (July 2025 Inflation Report), the MPC members said. However, this is primarily due to the arrival of newly harvested crops, including vegetables, while core inflation is slowing at a moderate pace.

In addition, a number of potentially pro-inflationary risks materialized in September–October. Ukraine’s increased need to maintain its defense capabilities has led to a revision of state budget needs and a widening of the budget deficit. Air strikes on and the destruction of energy infrastructure, supply chains, and production facilities have escalated significantly. This has already caused an increase in power shortages, particularly for businesses, something the NBU’s updated forecast takes into account. At the same time, there is a possibility for these risks to materialize further and have an impact on price developments.

The worsening of the security situation has likely also affected inflation expectations. Despite a steady decline in actual inflation, recent surveys show that expectations articulated by most groups of respondents have not improved and are overall still elevated, though kept under control.

The FX market situation has remained sustainable in recent months, with exchange rate fluctuations being moderate and going both ways. Thanks to support from the country’s partners, international reserves have risen to USD 46.5 billion, according to end-September data. Another USD 15 billion is expected to arrive by the end of the year. Negotiations on a reparations loan that would be backed by frozen russian assets have made some progress. The NBU’s baseline forecast incorporates the disbursement of this financing. However, the practical implementation of such a mechanism has yet to be approved and requires multiple decisions to be made at the political and technical levels.

Six MPC members called for maintaining the key policy rate at 15.5% in October

The distribution of risks to inflation has noticeably deteriorated since the MPC’s September meeting, these participants said. Specifically, higher power shortages and a greater budget deficit are likely to increase price pressures. The higher inflation expectations call for the NBU to act more cautiously than its previous forecast suggested and to slightly postpone the launch of an interest rate easing cycle.

One MPC member said the current retreat of consumer inflation is due to a better harvest of vegetables, a factor that is likely temporary. Yet the overall share of consumer basket ingredients that have risen in price by more than the attention threshold (10% yoy) is still high at over 56%. On top of that, underlying inflationary pressures are persistently resilient, judging by the pattern of annualized seasonally adjusted monthly increases in core inflation. The rate of growth in prices for processed foods is edging lower quite slowly, while services inflation is not subsiding at all. Unless underlying price pressures are sustainably reduced, consumer inflation may pick up in H2 2026 due to the low-base effect.

This MPC member highlighted the fact that the fallout from recent air strikes against energy infrastructure (both gas extraction and power generation) has already begun to weigh on the economy. In particular, industrial enterprises are once again experiencing power outages, the cost of power has risen in some of the markets, and price growth in mining has also accelerated after gas extraction infrastructure suffered damage. Further shelling of energy facilities and a worsening of the energy supply situation may result in higher production costs, which will eventually feed through to higher consumer prices, this MPC member said. The deterioration of the security environment may also have a negative impact on migration patterns and thus impede the anticipated shrinkage of labor market mismatches. And so there is no need to rush to ease interest rate policy at this time, this participant said.

Another MPC member said the NBU would be better off remaining vigilant until inflation expectations begin to improve. These are currently in the double digits for most respondents. Despite slower price increases for consumer essentials and a strengthening of the hryvnia’s exchange rate, September search queries data revealed an increase in the public’s attention to inflation that correlated with the worsening of households’ inflation expectations. The latter may deteriorate more substantially going into the end of the year if rising budget spending, energy shortages, and a negative information environment amid blackouts lead to elevated pressure on the hryvnia’s exchange rate and consumer prices. Lowering the key policy rate, this MPC member said, is therefore a rather risky step to take at this time, as it would loosen monetary conditions prematurely.

Anticipating a cut to the key policy rate, some commercial banks have already started adjusting their interest rate policies, another participant said. Which means that if a cycle of key policy rate cuts were to kick off now, the market would rather quickly follow suit by lowering the rest of the rates. With inflation expectations running high, this would push down the real yield on hryvnia instruments, ratchet up the risks of an investor flight to FX assets, and put that much more pressure on prices and international reserves.

Another participant agreed with this rationale, saying that certain warning signals are already appearing in the hryvnia asset market. Those include a slight thinning of hryvnia term deposit inflows in recent months and a rise in FX demand from households. Furthermore, despite continued inflows of hryvnia deposits into banks, the share of hryvnia term deposits has remained unchanged in recent months (below 34%). The liquidity overhang on people’s current accounts and in cash held outside banks is therefore still high. Given seasonal patterns, postponing the interest rate easing cycle is a prudent step to take. It will keep hryvnia assets attractive, help maintain the sustainability of the FX market, and ensure that inflation steadily moves toward its 5% target over the policy horizon.

Another MPC member said the current level of monetary conditions is a prudent compromise whereby the NBU ensures both that inflation sustainably approaches its target and that economic recovery gets the necessary support. Monetary conditions are currently not too tight, as evidenced by the rather brisk, healthy pace of lending development. Nor are they posing any threats of overheating or any risks to financial stability. Lending development will move ahead even if the key policy rate remains where it is now, because banks keep up easing their lending standards. Still, these monetary conditions cannot be called soft either, as they are driving a fairly strong demand for hryvnia assets, supporting the sustainability of the FX market, and contributing to inflation’s gradual progress toward the NBU’s target.

Four MPC members spoke in favor of lowering the key policy rate to 15% in October

These participants said that risks to further inflation developments remain relatively balanced. Accordingly, an easing of monetary conditions, if done with caution, will present no impediments to inflation approaching its 5% target within the policy horizon and will support economic recovery, whose pace has been revised down in the updated macro forecast.

There are sufficient grounds to reduce the key policy rate both from the perspective of the data-driven approach and in terms of the forward-looking approach, these MPC members said. Specifically, how the macroeconomic situation is unfolding is generally aligned with the NBU’s previous macro forecast, which had a cycle of tentative key policy rate cuts beginning in October. Consumer inflation is actually cooling ahead of the forecast, with core inflation running close to the forecast trajectory. Inflation expectations remain broadly sustainable. Nowcast estimates are showing a further decline in consumer and core inflation in October. The updated macro forecast, which takes into account higher budget expenditures in December and the fallout from the escalated shelling of infrastructure, also predicts an extension of the inflation downtrend.

This projection is made more credible by the downward-sloping dynamics of annualized seasonally adjusted monthly gains in consumer inflation. Measured in this way, underlying price pressures appear to have stabilized at relatively moderate levels, though short of exhibiting a steady decline. Second-round effects of the cooling in raw-food inflation will gradually help ease the pressure on processed-food prices. Labor market mismatches are also expected to moderate further over the forecast horizon, contributing to slower growth in real wages and thus alleviating the pressure on the costs incurred by businesses.

The FX market situation is looking sustainable: external support is coming in sufficient and predictable volumes; international reserves are at a high level; FX demand remains subdued, and exchange rate expectations are stable and even slightly improved in certain groups of respondents. The updated macro forecast’s baseline scenario assumes that sustainable and sufficient international financing inflows will keep on coming in the years ahead, primarily thanks to reparations loans backed by frozen russian assets. The NBU will highly likely be able to keep the FX market situation under control to limit price pressures while maintaining an adequate level of international reserves and contributing to the recovery of lending by easing interest rate policy.

One of these MPC members also expressed confidence that reducing the key policy rate by a prudent 0.5 pp will not have a significant impact on the attractiveness of hryvnia savings and will not encourage economic agents to switch to FX assets. Considering forecasts made by various think tanks, including the NBU’s own projections, the current yield on hryvnia instruments (both domestic government debt securities and deposits) is sufficient to offset future inflation.

Another participant concurred with this perspective, saying that a slight worsening of inflation expectations did not prevent household funds from continuing to flow into term hryvnia instruments in September. The slowdown in the growth of hryvnia domestic government debt securities in household portfolios is primarily due to significant repayment volumes in September and October. But a rollover takes less a month, which is rather fast, and actually brings a certain surplus. Which means demand for term hryvnia instruments is still there.

There have been no significant shifts in the distribution of inflationary risks since the previous meeting, these MPC members said. In particular, the risks driven by increased budget needs and energy deficits have materialized. In contrast, a number of positive events have also occurred: a larger-than-expected impact of disinflationary effects from the arrival of new crops, and further progress in talks with international partners on financing for the upcoming years, including through a reparations loan.

Another MPC member agreed, saying that although uncertainty over the further volume of budgetary needs and the size of the energy deficit is elevated, these risks will persist for at least as long as active hostilities and massive air strikes on Ukrainian cities and energy infrastructure continue. For now, the NBU should rely on available data and the results of the analysis of current trends, which indicate that inflation is entrenched on a slowdown trajectory. Moreover, significant upside risks may also materialize in the near future, such as confirmation of the needed volumes of external support for 2026–2027.

Another participant added that the risk associated with escalated attacks on energy infrastructure could have mixed effects on inflation. On the one hand, this risk will raise the costs of running a business. On the other hand, it will restrain consumer demand by redistributing expenses toward essentials and backup energy supplies, which will in turn limit price pressures, especially in the services sector. The combined impact of all of these factors on the expected inflation trajectory may therefore be close to neutral.

MPC members diverged on the further trajectory of the key policy rate

Five participants said the NBU will be able to start reducing the key policy rate no earlier than January 2026. Significant budget expenditures expected at the end of this year, coupled with the worsening of the energy situation, will restrain wiggle room for an easing of interest rate policy, at least in the next few months, they said. During this period, the NBU should remain vigilant and maintain the attractiveness of hryvnia assets to preserve the sustainability of the FX market and expectations.

Five other MPC members countered by saying it is possible to lower the key policy rate as soon as the end of this year in the event of a further sustained slowdown in inflation and improvement in inflation expectations. One of these participants added that key prerequisites for a rate cut should be reaching an agreement with the IMF on a new cooperation program and getting international partners to specify concrete conditions on which Ukraine could receive a reparations loan backed by immobilized russian assets.

Despite the difference of opinion about when the cycle of key policy rate cuts should commence, all MPC members have fairly uniform estimates regarding the scope for easing interest rate policy in 2026. The vast majority expect the key policy rate to be in the range of 12.5%–13.5% in late 2026. This will enable the NBU to maintain relatively tight monetary conditions to safeguard the sustainability of the FX market and the attractiveness of hryvnia savings, while also ensuring a steady decline of inflation to its 5% target over the policy horizon. Only one participant said there are opportunities for a more significant reduction of the key policy rate.