The majority of NBU members expect a new increase in the key policy rate in 2026

The overwhelming majority of members of the Monetary Policy Committee of the National Bank of Ukraine allow for a further increase in the key policy rate in 2026. The reason remains the strengthening of inflationary risks due to increasing business costs, labor shortages, more expensive energy, and significant budget expenditures.

During the meeting on July 29, nine of the 11 committee members supported raising the key policy rate from 15% to 15.5%. Two other participants advocated for keeping it at the previous level.

The regulator's decision itself was already published earlier: the NBU raised the key policy rate to 15.5% from July 31. New materials reveal the positions of committee members and their expectations regarding further actions by the regulator.

Supporters of the rate hike drew attention to the acceleration of core inflation. In June it rose to 8.1% year-on-year and notably exceeded the NBU's forecast. At the same time, headline inflation slowed to 7.2% thanks to a seasonal increase in the supply of unprocessed food products.

Several participants in the discussion warned that without an additional reaction from the National Bank, inflation could return fairly quickly to double-digit levels and become entrenched there. The rate hike, in their opinion, should support the attractiveness of hryvnia deposits and bonds, the stability of the foreign exchange market, and international reserves.

Among the main risks, committee members named further increases in wages and production costs due to personnel shortages, the expansion of budgetary stimuli, rising fuel prices, the previous weakening of the hryvnia, as well as the consequences of Russian attacks on enterprises, ports, and logistics.

Additional pressure is created by the war in the Middle East. According to the NBU's baseline estimates, its direct and secondary consequences could add 1.7 percentage points to inflation in 2026. If oil remains above $100 per barrel until the end of the year, the contribution of this factor could approach 3 percentage points.

One member of the committee considered that the discussion should have been not about keeping the rate, but about the choice between raising it by 0.5 percentage points and a more significant step. Ultimately, he supported the more moderate decision, taking into account the possible temporary disinflationary effect from problems with the export of Ukrainian agricultural products.

The two committee members who proposed keeping the rate at the level of 15% believe that monetary conditions are sufficiently tight for inflation to return to the 5% target. They drew attention to relatively stable inflation expectations and a possible increase in the supply of food within the country due to difficulties with exports.

Based on materials from: National Bank of Ukraine