On October 29, the National Bank of Ukraine increased its discount rate from 16% to 16.5% per annum. The decision was made against the backdrop of intensifying inflationary pressure and deteriorating inflation expectations, explains NBU Board Member Vasyl Furman in a column for RBC-Ukraine. At first glance, the move may seem paradoxical: the economy is suffering the consequences of attacks on production, energy, and logistics, businesses are facing staff shortages and rising costs, and recovery prospects remain uncertain.
Why the rate is rising instead of falling
Inflation in Ukraine has a complex nature: it is driven by domestic demand, supply constraints, and external price shocks. Rising energy and fuel prices increase costs for producers and carriers, while attacks on enterprises and infrastructure narrow production capabilities. The labor shortage and the need to ensure energy autonomy further drive up production costs. The central bank cannot lower global oil prices or restore destroyed capacities, but it has the tools to prevent temporary price shocks from turning into persistent inflation, Furman notes.
The danger of anchoring inflation expectations
Of particular concern is the deterioration of inflation expectations. When businesses and the population factor further price increases into their plans, it affects pricing, wage demands, and consumer behavior, and the initial shock risks becoming entrenched in the economy for a long time. That is why, according to the NBU's logic, the response must target not only current inflation but also the risks of its further acceleration.
Who wins and who faces more difficulties
Raising the rate makes hryvnia deposits and government bonds more attractive, helping to preserve the purchasing power of savings, support demand for the national currency, and curb excessive foreign exchange demand. For business, the picture is more complex: more expensive credits may delay equipment restoration and energy autonomy projects, although loan availability also depends on wartime risks. At the same time, the effect of monetary policy manifests gradually — a rate hike does not mean automatic price cuts next month.
Forecasts: 12.5% inflation and GDP contraction
According to the updated NBU forecast, inflation at the end of 2026 is expected at 12.5%, in 2027 at 7.3%, and a return to the 5% target is projected in 2028. At the same time, the real GDP growth forecast for 2026 has been revised from +1.8% to −0.4%. This is a complex combination of risks: inflation remains high, and the economy is experiencing a significant negative impact from the war.
What a single rate lacks
As Furman emphasizes, the discount rate alone cannot cope with this situation. Ukraine needs a coordinated fiscal policy, stable external financing, and the expansion of production capacities. The main task, according to him, is to find a balance between two critically important goals: price stability and economic growth, in order to build an economy capable of growing even in wartime conditions.
