Ukraine's central bank cuts key rate to 15% after inflation slows

• The rate cut aims to support lending growth, which has expanded over 30% year-on-year, helping the economy adapt to wartime challenges
• Ukraine's GDP is projected to grow just 1.8% in 2026, matching 2025's pace, with the energy deficit from Russian bombardments restraining business activity
• Foreign reserves reached a record $57.3 billion and are expected to hit $65 billion by year-end, supported by 90 billion euros in EU aid planned over 2026-2027 and potential $8.1 billion IMF program

Summary: Ukraine's Central Bank Cuts Key Rate to 15%

Ukraine's central bank reduced its benchmark interest rate by 50 basis points to 15% on Thursday, marking the beginning of a monetary easing cycle after maintaining rates steady throughout most of 2025. The cut reflects slowing inflation and increased certainty regarding international financial support.

Key Economic Indicators:

• Consumer price inflation declined to 8% year-on-year in December, with further decreases expected in January
• The central bank projects inflation will moderate to approximately 7.5% by year-end
• GDP growth is forecast at 1.8% for 2026, matching 2025's pace
• Lending has expanded over 30% annually in recent years

Monetary Policy Rationale:

Governor Andriy Pyshnyi cited declining inflationary pressures and reduced external financing risks as primary drivers for the rate cut. The decision aims to support continued lending growth and help the economy adapt to ongoing wartime conditions.

Challenges and Outlook:

Despite the easing, significant headwinds remain. Intensified Russian bombardments on power infrastructure have caused substantial energy sector damage, keeping inflation expectations elevated and constraining business activity. Higher imports of energy equipment and fuel are increasing demand for foreign currency.

Financial Support:

• Foreign exchange reserves reached a record $57.3 billion, expected to grow to $65 billion by year-end
• The European Union has committed €90 billion ($105.46 billion) in support over 2026-2027
• Ukraine is negotiating a new $8.1 billion lending program with the IMF

The central bank emphasized its commitment to maintaining foreign exchange market stability despite ongoing wartime economic challenges and energy sector difficulties.