The NBU explained how the increase in the key interest rate will affect the exchange rate of the dollar in Ukraine.

The increase of the NBU's key rate to 14.5% in January 2025 is expected to boost confidence in the hryvnia. Citizens and businesses will be less inclined to purchase dollars.

This is stated in the column by Vladimir Lepushinsky, Director of the Department of Monetary Policy and Economic Analysis at the NBU, for RBK-Ukraine.

"The decision to raise the rate aims to alleviate pressure on the currency market and prices, and to maintain the stability of inflation expectations. The tightening of policy will enhance the confidence of economic agents in the NBU's readiness to contain inflation," he wrote.

According to him, the interventions by the NBU had the most significant impact on the currency market in December 2024. As a result, despite a substantial increase in demand for foreign currency (due to seasonal factors), the hryvnia only depreciated by 1% against the dollar in December.

"The task of maintaining stability in the currency market remains relevant for us, as it is crucial to curb inflation and bring it back to the target of 5% in the coming years," Lepushinsky explained.

The NBU representative assured that the current increase in the key rate, aimed at protecting hryvnia savings from inflation, will help to mitigate pressure on the currency market and international reserves.

"If the NBU's monetary policy were not focused on combating inflation and the hryvnia lost trust, not only would the funds currently held in hryvnia deposits and government bonds be at risk, but also those from current accounts. Because why risk it, if it will undoubtedly be more expensive tomorrow? The increase in the key rate will make even considering such a scenario unnecessary," he wrote.

Lepushinsky also dismissed the "stunning impact of devaluation" on inflation.

"In recent months, the exchange rate factor has even somewhat restrained price growth. The reason is that since last autumn, the hryvnia has been steadily strengthening against the euro, which is significant for Ukrainian imports," noted the NBU department director.

Recall that the NBU decided to raise the key rate from 13.5% to 14.5% per annum starting January 24, 2025. According to NBU head Andrey Pyshny, the decision was made to maintain stability in the currency market, preserve manageable expectations, and gradually bring inflation down to the target of 5%.

The dollar exchange rate rose in the first half of January, reaching a peak of 42.28 hryvnias. In the cash market, the rate exceeded 43 hryvnias. However, in the second half, the NBU lowered the rate below 42 hryvnias. The cash rate fell by 1 hryvnia to 42.10 hryvnias.