The National Bank of Ukraine (NBU) opted to keep its key policy rate unchanged at 13% on September 19, a move aimed at facilitating the gradual return of inflation to the 5% target over the coming years while also maintaining stability in the foreign exchange market. (chart)

The NBU highlighted the importance of the decision, which seeks to support interest in hryvnia-denominated savings and manage demand for foreign currency. The central bank has faced considerable challenges in curbing inflationary pressures, exacerbated by the ongoing full-scale war.

"The decision will contribute to the gradual return of inflation to the 5% target in the following years and support the foreign exchange market's stability," the NBU said in its statement.

However, key risks remain for inflation dynamics and economic growth. The NBU pointed to several potential factors that could drive inflation higher:

• Increased budgetary needs, which may lead to further tax hikes, raising price pressures.
• Damage to critical infrastructure, especially in the energy and port sectors, could restrict economic activity and increase supply-side inflation.
• Worsening migration trends and a growing labour shortage in the domestic market could further undermine economic stability.

The central bank also noted uncertainty surrounding the level of future support from international partners and whether immobilised Russian assets will be transferred to Ukraine, both of which could have significant implications for the country's economic recovery.

As Ukraine continues to navigate the economic fallout from the war, the NBU's focus remains on balancing immediate monetary policy concerns with long-term stability in a highly volatile environment.