National Bank of Ukraine (NBU) Deputy Governor Volodymyr Lepushynskyi has explained why the regulator raised its key policy rate to 16.5% and downgraded Ukraine's 2026 economic forecast.
Writing in an opinion column for the Ukrainian news website LIGA.net, Lepushynskyi stated that the central bank cut its 2026 gross domestic product (GDP) forecast in October to a 0.4% contraction, reversing its July projection of 1.8% growth. Over the same three-month period between July and October, the NBU raised its year-end 2026 inflation forecast from 10% to 12.5%.
Alongside the revised outlook, the NBU increased its key policy rate in October by 0.5 percentage points to 16.5%. Lepushynskyi argued that regular macroeconomic forecasting, backed by this year's Nobel Prize-winning economic research by Robert Hall and Michael Woodford, allowed policymakers to make a moderate rate increase rather than imposing much harsher tightening.
Headquartered in Kyiv, the NBU serves as Ukraine's central bank and is responsible for managing the national currency, the hryvnia, regulating commercial banks, and maintaining price stability. Its key policy rate is the main benchmark interest rate used to influence borrowing costs and deposit returns across the Ukrainian banking system. LIGA.net noted that columns in its opinion section reflect the personal views of the author and may not align with the position of its editorial board.
Russian attacks and Middle East fuel price shocks
Lepushynskyi addressed questions over whether revising economic projections so sharply within three months meant that forecasting no longer worked, or whether spending resources on macroeconomic forecasts was worthwhile during wartime when conditions can shift drastically within weeks. He contended that forecasting is not only worthwhile during war, but critically necessary.
According to the deputy governor, the October downgrade stemmed from a set of new large-scale shocks. These included further intensification of Russian attacks on Ukrainian production facilities, warehouses, and logistics networks, a blockade of seaports, and a fresh wave of rising fuel prices caused by the war in the Middle East.
The NBU estimates that the intensified Russian shelling alone will reduce Ukraine's GDP in 2026 by 1.9 percentage points. GDP is the standard measure of the total market value of all goods and services produced within a country over a given period.
Even so, Lepushynskyi noted that the Ukrainian economy continues to adapt as businesses restructure production and logistics and find alternative solutions. International partners also continue supporting Ukraine, recognizing that the country is defending shared democratic values as well as its own security.
However, he pointed out that wartime adaptation comes at a price through additional production costs, higher prices for consumers, and lost economic potential. Lepushynskyi wrote that the task of a macroeconomic forecast is not to guess the future, but to help policymakers see the whole picture: how different shocks interact, how long their consequences will last, and what the economic policy response should be.
Inflation forecasts for 2027 and 2028
Lepushynskyi stressed that a central bank cannot simply react to actual inflation figures while declining to spend time on forecasts. Monetary policy in any country operates with a time lag, meaning decisions made today only take full effect on the economy and prices in the future, so relying exclusively on current inflation risks constantly acting too late.
He pointed to the October forecast as a clear example. Although inflation is projected to accelerate to 12.5% at the end of 2026, the NBU expects it to slow to 7.3% in 2027 and return to the central bank's 5% target in 2028.
Under the NBU's baseline scenario, part of the current shocks, particularly the effects of higher fuel prices, will gradually wear off. At the same time, the consequences of the war may cool consumer demand, which will also restrain inflation.
Understanding those processes enabled the NBU to react proportionately with its 0.5 percentage point rate hike to 16.5% in October. Lepushynskyi wrote that without a forecast, the reaction to accelerating inflation could have been significantly harsher, whereas having a projection allowed the bank to raise the rate moderately and balance price stability with support for the economy.
Hryvnia bank lending growth in Ukraine
Despite relatively tight monetary conditions, Ukrainian banks continue to actively lend to the economy. In September 2026, net hryvnia loans to businesses rose by 32% year-on-year, while net hryvnia loans to households grew by 38% over the same period.
According to Lepushynskyi, those figures show that maintaining sufficiently high interest rates to curb inflation does not automatically cause a contraction in credit. Instead, price stability and confidence in the hryvnia create the necessary foundation for sustainable long-term lending growth, and a high-quality forecast helps prevent high inflation from becoming entrenched without hurting lending.
Nobel Prize research by Robert Hall and Michael Woodford
Lepushynskyi linked the NBU's approach to this year's laureates of the Nobel Prize in Economic Sciences, American economists Robert Hall of Stanford University and Michael Woodford of Columbia University, who were honored for their research into the microeconomic foundations of macroeconomic stabilization. Formally the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award is presented annually by the Royal Swedish Academy of Sciences.
One of the key conclusions of Hall and Woodford's work is that the economy depends not only on what happens today, but also on what people and businesses expect tomorrow. If businesses and households are convinced that inflation will remain high, they factor that expectation into setting prices, wage negotiations, savings decisions, and investments.
As a result, a temporary price shock can turn into a lasting inflation problem. Because of that risk, Lepushynskyi wrote, the NBU cannot simply wait for the fallout from shelling or higher fuel prices to pass on its own.
By raising the key policy rate, the NBU supports the attractiveness of hryvnia deposits and the stability of the foreign exchange market. Explaining why a decision was taken and what policy will follow is equally important, he added, because public trust in the central bank's ability to control inflation increases the effectiveness of its decisions.
Wartime monetary policy schedule at the National Bank of Ukraine
While no model can predict all future attacks or geopolitical upheavals, Lepushynskyi argued that high uncertainty makes it especially important to have an analytical basis for assessing different scenarios and their consequences. A forecast must change along with circumstances, and what matters more than whether previous numbers came true is whether it helped identify risks in time and respond properly.
Describing a macroeconomic forecast not as a crystal ball, but as a tool to see the forest for the trees behind individual numbers and daily news, Lepushynskyi said it enables decisions that preserve price stability, trust in the hryvnia, and wartime economic resilience.
For that reason, the NBU has maintained its regular macroeconomic forecasting practice throughout the full-scale war. The central bank makes monetary policy decisions eight times a year: four times based on a comprehensive forecast, and four more times taking into account new data and changes in the balance of risks to the forecast.
