Ukraine's central bank raises key rate to 16.5% as GDP forecast flips to contraction

Ukraine's National Bank raised its key policy rate by 0.5 percentage points to 16.5% on 29 October after sharply downgrading its macroeconomic forecasts, with the economy now expected to contract in 2026.

The NBU's updated projections show a 0.4% GDP contraction in 2026, reversing the 1.8% growth forecast published in its July inflation report. Growth estimates for subsequent years were also cut: 0.4% in 2027 against a previous forecast of 2.8%, and 2.2% in 2028 against 3.0%.

Year-end inflation was revised upward to 12.5% in 2026 from 10.0%, and to 7.3% in 2027 from 6.9%, before returning to the 5.0% target in 2028. International reserves forecasts were cut across all three years, to $62.8 billion in 2026 from a prior estimate of $69.7 billion, and to $57.0 billion in 2028 from $70 billion.

NBU governor Andriy Pyshny attributed the deterioration to Russian aerial attacks on warehouses and logistics, a blockade of sea ports, and rising fuel prices linked to the conflict in the Middle East. The bank estimated that consequences of aerial attacks alone would add around 0.7 percentage points to annual inflation, and that the combined effect of the strikes and port blockade subtracted 1.9 percentage points from 2026 GDP.

In the third quarter of 2026, real GDP fell an estimated 0.5% year-on-year. Metallurgical and ore-mining enterprises suffered the greatest losses, with deterioration also recorded in other industrial sectors, trade, and agriculture.

Pyshny said the NBU plans to hold the rate at 16.5% until the second quarter of 2027.