The National Bank raised its key interest rate to 13.5% per annum due to inflation

The National Bank of Ukraine has raised its key interest rate due to surging inflation, and this may not be the last hike.

The central bank decided to increase its key rate from 13% to 13.5% per annum, announced NBU Chairman Andriy Pyshnyy during a press briefing on monetary policy.

Previously, the NBU had forecasted that the rate would remain unchanged until mid-next year.

“This decision is aimed at maintaining the stability of the foreign exchange market, keeping inflation expectations under control, and gradually slowing inflation,” Pyshnyy stated.

In November, Ukraine’s State Statistics Service reported annual inflation at 11.2%, whereas the NBU’s most recent forecast had been 9.7%.

“In the coming months, annual inflation is likely to continue rising due to the ongoing impact of food supply factors, significant budgetary spending, rapid wage growth, and higher energy deficits during the heating season. However, inflation is expected to slow down eventually as the energy sector situation improves and agricultural yields increase. This will also be facilitated by the NBU’s monetary policy measures and the anticipated easing of external price pressures,” Pyshnyy added.

NBU Deputy Chairman Serhiy Nikolaychuk noted that the central bank is no longer forecasting inflation for the end of 2024, as the current prediction of 9.7% did not hold.

“We are not ready to announce a specific figure, but inflation will be higher than we previously anticipated,” Nikolaychuk stated.

Pyshnyy emphasized that the ongoing war poses significant risks to further economic potential, particularly due to losses of people, territories, and production facilities. He indicated that the speed of economic normalization will depend on the nature and duration of military operations.

Pyshnyy outlined the key risks to the economy:

1. Additional budgetary needs, primarily for defense.
2. Potential tax increases, which could amplify inflationary pressures depending on the specifics.
3. Further damage to infrastructure, particularly energy and ports, which would limit economic activity and exert supply-side pressure on prices.

The NBU head also hinted at the possibility of further rate hikes.

“The NBU will continue tightening monetary policy in upcoming board meetings if signs of persistent inflationary pressure and risks of unanchored inflation expectations persist,” Pyshnyy noted.

He also mentioned that Ukraine expects to receive about $8.5 billion in international aid in December 2024.

It is worth noting that Ukraine’s economy grew by approximately 4% in 2024, though its growth has slowed in recent months.