The NBU has raised the key interest rate again due to a surge in inflation.

The National Bank of Ukraine (NBU) has decided to raise the discount rate from 13.5% to 14.5% per annum starting January 24, 2025. This marks the second consecutive increase in the rate.

NBU Chairman Andriy Pyshnyy announced this, as reported by RBK-Ukraine referencing a briefing on Youtube.

"To maintain the stability of the currency market, control expectations, and gradually bring inflation to the target of 5% within the policy horizon, the NBU Board decided to increase the discount rate by 1 percentage point to 14.5%," he stated.

Previously, the Director of the Monetary Policy and Economic Analysis Department of the NBU, Volodymyr Lepushynskyi, did not rule out that the central bank might raise the rate again to curb inflation.

Change in Rate

It is noteworthy that the NBU kept the discount rate at 10% since the war began and decided to raise it to 25% in June 2022. This rate remained until July 2023, when the NBU began to lower it. The rate decreased to 15%. The NBU also reduced the rate in 2024. Since June, it has remained unchanged at 13%.

However, in December 2024, the NBU raised the rate to 13.5%.

According to the State Statistics Service, the annual inflation in Ukraine in December 2024 was 12.0%.

Discount Rate

The NBU's discount rate is one of the key tools of monetary policy that determines the cost of money in Ukraine. It influences the rate at which the NBU provides loans to commercial banks and accepts deposits from them. The discount rate affects the overall level of interest rates in the economy, including rates on loans and deposits for businesses and individuals.

The primary indicator that the NBU regulates with this rate is the level of inflation. When the rate increases, inflation should decrease after a certain period. Conversely, a decrease in the rate can accelerate inflation. Currently, the rise in prices in Ukraine has accelerated to 12.0% in December. Inflation is expected to rise in the coming months. Under such conditions, central banks typically lower rates.

Among economists, there is a consensus that the main rate should exceed the level of expected inflation.

Expected Inflation

According to the NBU, the population in December 2024 expected that inflation would be 11.3% a year later. This is significantly higher than the November forecast (7.8%).

Financial analysts in January 2025 downgraded their forecast to 7.8%, compared to 7.2% in December of the previous year.

However, bankers' expectations in January improved to 9.0%, compared to 9.2 in October of the previous year.

Business leaders in November 2024 expected inflation in 12 months to be at 10.3%. This forecast has been raised compared to August (9.7%).