Why the NBU's key policy rate is holding back the economy, not inflation

on July 24, the NBU Board decided to keep the key policy rate at 15.5% per annum. The parameters of other NBU instruments were also maintained: the rate for 3-month deposit certificates was 19% per annum, overnight deposit certificates – 15.5% per annum, and refinancing loans – 19.5% per annum.

Monetary Design and Economic Growth. Monetary design parameters remain ultra-tight: the key interest rate exceeds not only inflation but also GDP growth, which limits the availability of borrowed funds for investment development.

The country has maintained a tight monetary policy almost continuously for the past eight years, which is a key factor in depressing economic activity and reducing the competitiveness of Ukrainian producers. In 2022-2025, GDP has recovered to only 77% of its pre-war level, while in the first six months of 2025, GDP growth is only +0.8% compared to last year, which is significantly lower than even the updated forecasts of the IMF, the government, and the NBU (which fluctuate around 2% per year). The NBU was the last among key institutions to revise its GDP forecast and continues to assert that its monetary policy does not affect GDP dynamics.

Monetary Policy and Inflation. Due to the weakness of monetary transmission channels and the dominance of non-monetary inflation factors, the key policy rate has little or no impact on inflation. However, the NBU continues to clamp down on the money supply with stubborn persistence, depriving the economy of any chance for development.