Ukraine raises its key rate to 16.5% as war damage pushes inflation to 10%

What changed

The National Bank of Ukraine raised its key policy rate to 16.5%. The decision came as headline inflation accelerated to 10.0% year on year in September 2026, with core inflation at 8.8% over the same period. m:…4875

The bank did not present this as a short step. It plans to maintain the key policy rate at 16.5% until the second quarter of 2027, which gives borrowers and lenders a long stretch at the higher rate to plan around. m:…0126

The decision was set out at a press briefing on monetary policy decisions on October 29, 2026, where Governor Andriy Pyshnyy addressed the move. m:…7418

Why inflation is rising

The bank's own explanation points away from ordinary demand pressure and toward the war. Aerial attacks are estimated to add 0.7 percentage points to annual inflation, and they contributed minus 1.9 percentage points to the 2026 GDP forecast. m:…0126

That damage shows up in the forecasts as well. The NBU revised its 2026 inflation forecast upward to 12.5%, while projecting that inflation will slow to 7.3% year on year in 2027. m:…4875

The bank expects inflation to return to its 5% target only in 2028. That is a long horizon, and it is the reason a hold at 16.5% into mid-2027 reads as patience rather than a pause before a quick reversal. m:…4875

A shrinking economy with fast loan growth

Real GDP decreased by 0.5% year on year in the third quarter of 2026, and the bank revised its 2026 real GDP forecast downward to minus 0.4%. A rate rise into a contracting economy is an unusual combination, and it only makes sense if the bank judges that inflation expectations are the larger risk. m:…4875

Credit is still expanding quickly underneath that contraction. Net hryvnia corporate loans grew by over 32% year on year in September 2026, and net retail loans grew by over 38% over the same period. m:…0126

This suggests the transmission of the higher rate is not simply shutting lending down. The question for bankers is whether that loan growth reflects genuine demand and repricing, or borrowing that will look harder to service if the rate stays at 16.5% through the first half of next year. m:…0126

What the bank is counting on

The bank expects Ukraine to receive approximately 50 billion dollars in direct budget support in 2026, plus more than 32 billion dollars under the defense component of the Ukraine Support Loan in 2026. Those flows are central to the outlook, because they fund the state while the domestic economy contracts. m:…0126

The bank also aims to maintain international reserves above 62 billion dollars in 2026 and 2027. Reserves at that level give it room to defend stability while it holds rates high, but the plan depends on the external support arriving as expected. m:…0126

The implication is a slow grind rather than a sharp turn: inflation easing to 7.3% in 2027 and back to the 5% target in 2028, with growth still negative in 2026. Anyone modelling Ukrainian credit needs to price a long period of tight policy, not a brief spike. m:…4875

International reserves are expected to remain above 62 billion dollars in 2026 and 2027, according to the bank. That buffer is part of the plan: the hold at 16.5% does not stand alone, but sits alongside reserves and external support that are meant to steady the budget while inflation eases. m:…4875