Ukraine raises rate to 16.5% as economy set to shrink 0.4%

Ukraine’s central bank raised its key interest rate to 16.5 per cent from 16 per cent on Oct. 29 and forecast that the economy will shrink 0.4 per cent this year, the country’s first annual contraction since 2022.

The National Bank of Ukraine had projected 1.8 per cent growth for 2026 in July. It now expects inflation to end the year at 12.5 per cent, up from a previous forecast of 10 per cent, and says it will hold the rate at 16.5 per cent until the second quarter of 2027, the Kyiv Post reported.

“The Board of the National Bank of Ukraine has decided to raise the key policy rate to 16.5% in view of significantly stronger price pressures and worsening inflation expectations,” Governor Andriy Pyshnyy said at a briefing, according to Ukrinform.

Pyshnyy said the biggest factor in the downgrade was the impact of intensified attacks, which the bank estimates cut 1.9 percentage points from GDP. Real GDP fell 0.5 per cent from July to September, he said, Ukrinform reported.

The governor also said aerial attacks alone will add about 0.7 percentage points to annual inflation, with higher fuel prices and expanded fiscal stimulus also pushing prices up.

The bank expects only a slow recovery. It forecasts GDP growth of 0.4 per cent in 2027, down from 2.8 per cent in its previous forecast, and 2.2 per cent in 2028, down from 3.0 per cent, the Kyiv Post reported. Ukrinform reported that the 2027 figure rests on the bank’s technical assumption that logistics improve in mid-2027.

Inflation is forecast at 7.3 per cent in 2027 before returning to the bank’s 5 per cent target in 2028, the Kyiv Post reported. “Taking the consequences of the destruction into account, the NBU forecasts a slow recovery in economic growth in 2027-2028,” the bank said, The Kyiv Independent reported.

The forecast assumes foreign partners will provide $52 billion in direct budget support and $37 billion for defence next year through the European Union’s Ukraine Support Loan, The Kyiv Independent reported. Canada News Media reported on Oct. 19 that the EU had left a 70-billion-euro gap in Ukraine’s 2027 financing unfilled.

The contraction follows growth of 5.5 per cent in 2023, 2.9 per cent in 2024 and 1.8 per cent in 2025, according to the Kyiv Post.

For Canadians, the numbers matter most to the Ukrainian-Canadian community, one of the largest Ukrainian diasporas outside Ukraine, with inflation in Ukraine forecast at 12.5 per cent by December. In the euro zone, the European Central Bank held its rate at 2.5 per cent the same day, 14 percentage points below Kyiv’s new rate.

Via Ukrinform, the Kyiv Post and The Kyiv Independent. The National Bank of Ukraine’s own release could not be accessed when this article was written.

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