Ukraine’s central bank, the National Bank of Ukraine (NBU) kept the key rate at 15.5%, signaling that inflation will decelerate to one digit at the end of 2025.
The central bank announced the decision at a briefing on Thursday.
In March, Ukraine reached an inflation rate of 14.6%, and is currently in the stage of passing the peak unless war or global uncertainty put more pressure on prices.
“This year we believe that NBU policy will impact inflation and it will decrease to one digit of 8.8% at the end of this year, aiming to reach Ukraine’s central bank target of 5% next year. But we see the uncertainty, so we will be flexible in our response to risks,” NBU governor Andrii Pyshny said during a briefing, replying to a Kyiv Post question.
NBU will keep the rate until inflation decelerates more.
“For now, we see reasons to keep the key rate unchanged until we pass the peak of inflation,” Pyshny said.
The reasons for the 14.6% inflation rate are:
- Weakening of the impact of poor harvests in 2024
- Ongoing price increase for excise products (tobacco and alcohol) since higher excise taxes were implemented as a requirement for the EU accession
- Energy price increase for business
- Wages increase
- Stable consumption
“At the same time, the monthly dynamics of inflation, adjusted for seasonal trends, is indicating signs of weakening price pressure…The March survey showed a further improvement in household expectations, and the statistics of Internet search requests showed a decrease in the population’s attention to the topic of inflation from peak levels at the beginning of the year,” the NBU wrote in its press release, released after the briefing.
According to the NBU forecast, annual price growth will begin to slow down in the summer for a wide range of goods and services. The NBU forecasts a decrease in food inflation from the third quarter of 2025.
An improvement in the electricity supply situation, and more moderate pressure from the labor market will also impact inflation decrease, according to the NBU.
The NBU forecast for Ukraine’s real GDP growth worsened
The Ukrainian economy is expected to grow by 3.1% in 2025, according to an updated forecast. In January this year, the NBU had forecast the real GDP to grow by 3.6%, according to the January 2025 Inflation Report.
The increase in pessimism is caused both by the looming trade wars and increased destruction of gas infrastructure from Russia’s strikes in the beginning of 2025.
The latter caused a loss of 40% in gas production. Ukraine could import at least 4 billion cubic meters of gas between April and October, Dmytro Lyppa, the head of Ukraine’s gas operator, told Reuters.
The war is also still impacting the lack of employees, caused by a wave of refugees during February-March 2022.
“Economic growth remained subdued in the first quarter of 2025, in particular due to the destruction of gas infrastructure and the resulting increase in gas import needs. Despite some recovery in the labor market, the war-induced shortage of skilled workers also remained a significant constraint, according to business surveys,” the NBU wrote.
But there is another reason – Ukraine’s economy reached its peak potential and cannot physically produce more now.
Previously, Chief Executive of The Institute for Economic Research and Policy Consulting (IER) Oksana Kuziakiv told Kyiv Post in an interview that she does not believe in miracles for Ukraine’s economy in 2025.
She and her colleagues at the IER observed that Ukraine’s economy is now working at its maximum capacity and cannot physically deliver a higher real GDP increase.
The National Bank of Ukraine Deputy Governor Sergiy Nikolaychuk sees the economic exhaustion in the same way.
“The economy is currently close to its [maximum] potential. We decreased the forecast not because the economy is cooling down, but because the intensity of war and Russia’s terror of civilians impacted a decrease in Ukraine’s economic potential,” Nikolaychuk said during the press briefing on Thursday.
How US tariffs and geopolitical uncertainty impact Ukraine
Russia’s invasion remains the key risk factor influencing Ukraine’s economic forecast.
But now Ukraine’s National Bank is also concerned about trade wars across the world and the impact of US President Donald Trump’s tariffs, which were imposed on 90 countries.
Tariffs and trade wars may also impact the West’s aid to Ukraine, the NBU wrote. If trade wars are prolonged, it will impact the stability of any macroeconomic forecast and cause unstable flows of Western aid to Ukraine – the economies will be dealing with trade wars instead of allocating resources to Ukraine’s resilience.
“One of the additional risks is tariff wars that will boost global uncertainty and cause a cooling down of the external demand,” Nikolaychuk said during the press briefing.