The NBU Raised Its Rate to 16.5% and Now Forecasts a Recession in 2026

On October 29, 2026, the National Bank of Ukraine raised its key policy rate by 0.5 percentage points to 16.5% a year, effective October 30. It is the third hike in a row since July. At the same time, the NBU sharply cut its outlook: it now expects the economy to shrink by 0.4% in 2026 and inflation to reach 12.5% by the end of the year. In the baseline scenario, the rate stays at 16.5% at least through the second quarter of 2027. Below: why a central bank tightens as the economy contracts, and what that means for hryvnia savings.

Sources: Interfax-Ukraine: the NBU decision, Kyiv Post: the NBU's new forecast.

What the NBU Decided and How the Forecast Changed

The rate was cut to 15% early this year and held for three meetings. Since July, the NBU has raised it by 0.5 points three times: to 15.5%, to 16% in September, and now to 16.5%. The central bank cited a substantial intensification of price pressures and deteriorating inflation expectations. In its statement, the NBU said it "stands ready to respond flexibly to further changes in the balance of risks."

Compared with July, the new macro forecast looks like this:

• GDP: 2026 at −0.4% instead of +1.8%; 2027 at +0.4% instead of +2.8%; 2028 at +2.2% instead of +3.0%.
• Year-end inflation: 2026 at 12.5% instead of 10%; 2027 at 7.3% instead of 6.9%; a return to the 5% target is expected in 2028.
• International reserves: $62.8 billion at the end of 2026 instead of $69.7 billion, $62.1 billion in 2027 and $57.0 billion in 2028.

The NBU estimates that real GDP fell 0.5% year on year in the third quarter of 2026. The port blockade and attacks on production and logistics, by the central bank's count, took 1.9 percentage points off 2026 GDP growth. NBU Governor Andriy Pyshnyi said the downward trend has been driven primarily by the effects of the blockade of seaports. The forecast rests on assumptions about international support: about $50 billion in direct budget support and over $32 billion for defense in 2026, and $52 billion and $37 billion respectively in 2027.

Sources: Interfax-Ukraine: the NBU decision, Kyiv Post: the NBU's new forecast, Ukrainska Pravda: Pyshnyi on the port blockade.

Why Raise Rates When the Economy Is Shrinking

The textbook says a central bank cuts rates in a recession to support demand. That works when weak demand slows the economy and prices cool too. Ukraine faces a supply shock instead. Strikes are destroying plants, warehouses and logistics, so there are fewer goods and services and prices go up. According to the NBU, inflation reached 10% year on year in September, with core inflation at 8.8%, and the trend continued in October. Among the causes, the central bank names more expensive fuel because of the war in the Middle East and attacks on warehousing and logistics infrastructure. Pyshnyi estimated that the consequences of aerial attacks alone will add about 0.7 percentage points to annual inflation. Other risks the NBU lists include additional budget needs, including for defense, and wage pressure from labor shortages.

A lower rate would not rebuild destroyed capacity, but it would make the hryvnia less attractive. Some savings would move into foreign currency, the hryvnia would weaken faster, imports would get dearer, and inflation would accelerate further. That is why the NBU watches the real rate, meaning the rate minus expected inflation. If inflation is expected to reach 12.5% by year-end, a 16% rate leaves a thinner cushion above it, and with it a weaker incentive to keep money in hryvnia. The hike to 16.5% is an attempt to keep that cushion positive and anchor inflation expectations.

The cost is more expensive credit for businesses that are already losing output. But, as we wrote before the October 29 decision, the central bank is choosing between two risks, not between a good option and a bad one.

Sources: Interfax-Ukraine: the NBU decision, Kyiv Post: Pyshnyi on the inflation impact of attacks, Forbes Ukraine: risks in the NBU forecast.

FX Pressure: Record NBU Sales in October

The pressure shows most clearly in the currency market. In the last week of October, the NBU sold $1.82 billion on the interbank market, 52.4% more than a week earlier and more than in any week on record. The previous record, $1.63 billion, was set at the end of 2024. Over October as a whole, the central bank sold almost $6 billion, beating September's monthly record of $5.52 billion. For comparison, interventions in October 2025 were about $2.9 billion. In our October 27 digest we reported weekly sales of $1.19 billion.

Even so, the official rate hit a record low for the hryvnia of UAH 45.6008 per dollar on October 28; the official rate set a new record five times in October alone. The hryvnia recovered a little by the end of the week: the NBU set the rate for November 2 at UAH 45.3526 per dollar.

On October 29, NBU Deputy Governor Yuriy Heletii explained the imbalance. In January through October, bank clients' demand for foreign currency rose by at least 25%, or about $16 billion, while supply rose by only about $2 billion. Net demand on the non-cash market averaged $182 million a day in October and $230 million over the last five trading days. Heletii named two causes: higher budget spending is raising demand for currency, while farmers and steelmakers are selling less of it because of damaged logistics.

The mechanism: the less currency exports bring in, the larger the share of demand the NBU covers from its reserves. A high rate is a second tool alongside interventions: it supports the appeal of hryvnia assets and the stability of the FX market, which is how the NBU itself explained the decision. Without it, holding the same exchange rate would take even larger currency sales.

Sources: Interfax-Ukraine: interventions and FX demand, Ekonomichna Pravda: the October intervention record, Minfin: the FX market in October.

Higher for Longer: What It Means for Deposits and OVDP

For savers, what matters most is not the 0.5 points but the signal that the rate will stay at 16.5% at least through the second quarter of 2027. That is a forecast, not a promise: the NBU says plainly that it will adjust policy depending on how the attacks affect inflation and the economy.

The government bond market already shows high rates. At the October 27 auction, before the decision, the Ministry of Finance sold one-year hryvnia OVDP at a yield of 14.94% a year and 3.3-year bonds at 16.49%. After the decision, the NBU's rate on overnight certificates of deposit, where banks park spare hryvnia, is 16.5% a year. Bank deposit rates usually follow the key rate with a lag.

Real yield, the gain in purchasing power, is roughly the nominal yield minus inflation; more precisely, you divide. A one-year OVDP at 14.94% with inflation at 12.5% at the end of 2026 gives a real yield of about 2.2% (1.1494 divided by 1.125). Measured against the NBU's forecast of 7.3% for the end of 2027, it would be about 7%. For a bond maturing in the fall of 2027, the real result will land between those estimates, depending on how fast inflation slows; if prices cool more slowly than the NBU expects, it will be closer to the lower end.

The same calculation applies to deposits, minus the tax on interest; individuals' OVDP income is exempt from that tax. And if your goals are in dollars, you also need to subtract the hryvnia's depreciation: over the past year, by Minfin's count, it lost about 8% against the dollar, from around UAH 42 to UAH 45.35.

Sources: Interfax-Ukraine: the NBU decision, Finansovyi Klub: the October 27 OVDP auction, Minfin: NBU rates and the exchange rate over the year.

What Comes Next

• November 9: the summary of the Monetary Policy Committee's discussion, which will show whether a bigger step was considered and how united the decision was.
• December 17: the NBU's next key rate decision.
• By year-end: whether international financing arrives in the amounts the forecast assumes, which determines whether the $62.8 billion reserves estimate holds.

Sources: Interfax-Ukraine: the NBU calendar.

Practical Takeaway for Investors

• A recession does not mean quick rate cuts: as long as a supply shock is driving inflation, the NBU keeps the rate high, and the baseline is 16.5% until mid-2027.
• Compare instruments by real yield: subtract expected inflation, taxes and, if your goal is in dollars, a possible weakening of the hryvnia from the nominal rate.
• Term matters: short OVDP and deposits reprice to new rates sooner, while longer ones lock in a yield but only pay off in real terms if inflation actually slows.
• Record interventions show that the exchange rate rests heavily on reserves and foreign aid; a foreign-currency share of savings is insurance against that risk, not a bet on the exchange rate.