The National Bank of Ukraine stated in a report dated 22 December that uncertainty over Western financing remains the primary constraint, even as inflation cools faster than anticipated.
The contrast with Russia is striking. While Moscow’s central bank has lurched between emergency hikes to 21% and surprise cuts—its fifth reduction came just last week—Ukraine has held its rate steady all year. The invaded country is running a tighter monetary policy than the invader.
The “elephant in the china shop”
One monetary policy committee member called the uncertainty over 2026-2027 foreign financing “the elephant in the china shop”—too large a risk to ignore when making rate decisions.
The math favors a cut. Inflation slowed to 9.3% in November, beating the NBU’s own forecast of 9.7%. A record vegetable harvest pushed food prices down, and butter costs finally eased after months of painful increases.
But the EU’s December summit left Ukraine’s long-term financing unresolved.
Leaders approved €90 billion ($94 billion) through 2027, while kicking the €210 billion ($220 billion) frozen Russian assets question down the road. Until that’s settled, NBU policymakers argue, cutting rates risks looking reckless.
“Premature rate cuts could reduce the attractiveness of hryvnia instruments, increase pressure on the exchange rate and international reserves,” the committee minutes state. Those reserves serve as Ukraine’s buffer in case Western aid arrives late next year.
War costs constrain policy
Russian strikes on energy infrastructure added another constraint. Wholesale electricity prices rose to “historical maximums” this autumn, according to the NBU. Market data shows extreme volatility—prices can swing from under 100 UAH ($2.4) per megawatt-hour overnight to 15,000 UAH ($357) during peak evening demand when supply falls short.
For comparison, EU wholesale prices averaged around $90 per megawatt-hour in the first half of 2025, according to the IEA. Ukraine’s peak prices run roughly four times higher.
The attacks destroyed major thermal and hydro generation facilities in November, the committee noted.
Prolonged blackouts and infrastructure strikes also raise migration risks, potentially worsening labor shortages that keep wages—and inflation—elevated.
One dissent
The lone dissenter in the NBU monetary committee argued the central bank should cut to 15% now and react to financing risks only if they materialize.
“There’s every chance inflation will continue falling faster than the NBU forecast,” the dissenting member said, noting that fundamental price pressures are easing.
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Keeping rates unchanged while inflation drops means monetary policy is effectively tightening—potentially excessive, given that business sentiment has already weakened due to Russian attacks.
The majority disagreed. Eight members expect rates to fall to 12.5% by the end of 2026, matching the forecast made in October. But three see rates staying higher—in the 13-14% range—given persistent war-related risks.
What comes next
The committee agreed that the path forward depends on Western partners. If financing questions resolve favorably, rate cuts can begin. If they don’t—or if risks intensify—the NBU signaled readiness to hold rates or even tighten further.
For now, Ukraine is building the institutional credibility it needs for EU membership while fighting for the territory to use it. Russia’s central bank, by contrast, is firefighting an economy distorted by war spending, with small businesses facing a January tax shock that could trigger a banking crisis.
The country under invasion has the steadier hand.
