The National Bank of Ukraine (NBU) has decided to maintain its key policy rate at 13% on July 25, halting a series of three consecutive rate cuts. (chart)

The decision comes amid rising inflation, which has prompted policymakers to signal that any further easing of monetary policy may not occur until next year.

Economists had anticipated a reduction in borrowing costs of at least 0.25 percentage points. However, the NBU's decision reflects concerns about inflationary pressures, which accelerated in June to the highest levels since December. The surge in inflation has been driven by increased budget spending and a depreciation of the hryvnia, which has raised business costs.

The NBU noted that the decision to keep borrowing costs steady was crucial to ensuring the stability of the foreign exchange market and to bring inflation closer to the target rate of 5% within the forecast period. As part of its updated economic outlook, the NBU has revised its year-end inflation forecast upward to 8.5%, from a previous estimate of 8.2%. It expects inflation to slow to 6.6% by 2025.

While the NBU had reduced the benchmark rate by two percentage points over the last three meetings, the latest inflation data has tempered expectations for continued rate cuts in the near term.

NBU has updated its economic forecast, predicting a 3.7% growth in GDP for 2024, up from an earlier forecast of 3%. The revised outlook reflects continued economic growth despite recent slowdowns attributed to large-scale attacks on the energy sector by Russia. Ukrainian businesses have partially adapted to the disruptions caused by frequent power outages.

In its latest report, the NBU also adjusted its forecast for consumer price growth in 2024 to 8.5%, slightly higher than the 8.2% forecast in April. Inflation is expected to moderate to 6.6% in 2025 and further decline to 5% by 2026. After a period of decline, inflation began to rise again in May, reaching 4.8% year on year in June.

The recent increase in the dollar-hryvnia exchange rate has been driven by higher demand for foreign currency and a decrease in foreign currency exchanges. However, the dollar has seen a decline for four consecutive days following a peak. The official exchange rate for July 26 is set at UAH41.1977 per dollar.