Economy January 29, 2026

Ukraine’s central bank begins easing cycle, trims key rate to 15% as inflation cools

Monetary easing aims to support credit growth amid energy-sector strains and clearer international financing

By Jordan Park
Ukraine’s central bank begins easing cycle, trims key rate to 15% as inflation cools

Ukraine’s central bank lowered its policy rate to 15% from 15.5% on Thursday, citing a slowdown in consumer inflation and improved visibility on international financial support. Officials said the move marks the start of an easing cycle intended to bolster lending and help the economy adapt to wartime challenges, while noting persistent risks tied to damage to energy infrastructure and elevated inflation expectations.

Key Points

  • The central bank cut the key policy rate to 15% from 15.5% due to slowing inflation and clearer expectations for international financing; this supports lending growth and economic adaptation to wartime conditions.
  • Consumer inflation slowed to 8% year-on-year in December and is expected to fall further in January, though year-end inflation is projected to remain around 7.5%.
  • Authorities forecast GDP growth of 1.8% in 2026, unchanged from last year, and highlight the energy-sector deficit as a central constraint on business activity and growth; rising imports of energy equipment and fuel are increasing demand for hard currency.

Ukraine's central bank reduced its key interest rate to 15% from 15.5% on Thursday, saying lower inflation and greater clarity around external financing this year supported the decision.

Consumer price inflation eased to 8% year-on-year in December, and the central bank indicated it expects inflation to continue to fall in January. Governor Andriy Pyshnyi said the institution had decided to commence a cycle of interest rate easing, citing a sustained decline in inflationary pressures and diminished risks related to external financing.

The central bank also noted that the policy rate was held steady through much of 2025. Pyshnyi told an online media briefing that the reduction in the key rate is intended to help the economy adapt to wartime challenges - specifically by supporting lending, which has expanded at a rate of more than 30% year-on-year in recent years.

At the same time, the bank's public statement warned that inflation expectations remain elevated, linked to destruction in the energy sector after intensified bombardments of Ukraine's power infrastructure. The institution projects inflation will end the year only marginally lower, at roughly 7.5%.


Outlook for growth and the balance of payments

Central bank officials said they expect economic growth to continue in 2026 but at a restrained rate because of the energy deficit. The bank forecasts gross domestic product will rise by 1.8% this year, matching last year's pace. Pyshnyi emphasized that the difficult situation in the energy sector will continue to weigh on business activity for an extended period.

Officials also highlighted that higher imports of energy equipment and fuel are driving demand for hard currency, a dynamic that influences the foreign exchange market.

The central bank reiterated its commitment to maintaining stability in the foreign exchange market. Reserves stood at a record $57.3 billion and the bank expects them to grow to $65 billion by the end of this year.

International financing remains a significant element in the outlook. The European Union plans to provide Ukraine with 90 billion euros of support over this year and next, and Ukraine is in discussions with the International Monetary Fund on a potential new $8.1 billion lending program.


Implications for markets and policy

The decision to lower the key rate signals a shift toward monetary accommodation, intended to support credit activity amid wartime constraints. At the same time, the central bank's forward guidance and reserve targets reflect an effort to anchor the foreign exchange market while managing the effects of energy-sector damage on inflation expectations and economic activity.

Risks

  • High inflation expectations driven by destruction in the energy sector following intensified bombardments could keep price pressures elevated and complicate the inflation path - impacting consumer prices and real incomes.
  • Persistent energy-sector constraints may continue to restrain business activity and GDP growth, affecting industrial output and sectors reliant on stable power supply.
  • Increased demand for hard currency from higher imports of energy equipment and fuel could place pressure on the foreign exchange market if international financing does not materialize as anticipated.

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