Ukraine's central bank raises key policy rate to 14.5% amid inflation concerns

The National Bank of Ukraine (NBU) has raised its key policy rate by 1 percentage point to 14.5% annually, as reported by the regulator's press service.

This decision is aimed at supporting the stability of the currency market, maintaining control over inflation expectations, reversing the inflationary trend, and gradually reducing inflation to 5%. Further tightening of monetary policy may be required to curb price pressures, according to the central bank's statement.

When the NBU decided to raise the key rate by 0.5 percentage points to 13.5% in December, it anticipated a further increase in early 2025 if signs of accelerating inflation persisted.

Annual inflation in Ukraine accelerated to 12% in December, up from 11.2% in November and 9.7% in October.

The NBU notes that the high rate of consumer price growth was largely driven by temporary factors, primarily related to the effects of last year's poor harvests. However, fundamental price pressures have also intensified. This is evidenced by the further acceleration of core inflation (to 10.7% in December), particularly due to the rapid increase in service prices (12.5% in December).

"This price dynamic was driven by increased business costs for raw materials, materials, and electricity, as well as wage increases amid a persistent labor shortage. Meanwhile, in recent months, price growth has been somewhat restrained by the strengthening of the hryvnia against the euro, which is important for Ukrainian imports," the NBU explained.