NBU holds prime rate unchanged at 15.5% amid eased FX pressure

UKRAINE - In Brief 17 Apr 2025 by Dmytro Boyarchuk

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The NBU Board left the prime rate unchanged at 15.5% at today’s meeting, contrary to our expectations. Despite inflation accelerating in March to +1.5% m/m and +14.6% y/y, the NBU noted it sees some signs of easing, though it acknowledged that inflationary expectations remain high. Most likely, the easing pressure on the FX market signaled to the NBU that a pause in monetary tightening could be warranted. The recent decline of the US dollar in global markets may also have discouraged Ukrainians from converting their savings into dollars. The NBU likely chose to capitalize on this trend by sending an unexpectedly positive signal. Another surprising detail from the NBU release is the sharp upward revision of its gross reserves forecast—from $40.5 billion to $57.6 billion by the end of 2025. It appears that all funds allocated under the ERA program will be frontloaded in 2025, rather than distributed in tranches over 2025–2026. This explains the NBU’s significantly more optimistic outlook on gross reserves. The NBU also revised its current account forecast, now projecting a $17.3 billion CAD in 2025, compared to a previously estimated $2.6 billion surplus. It also raised its inflation forecast to 8.7% YTD (we had projected 8.6%), up from the earlier estimate of 8.4% YTD. Meanwhile, the GDP growth forecast was downgraded to +3.1% from the previously estimated 3.6%, due to risks associated with the unfolding trade war. The next NBU Board meeting is scheduled for June 5, but with ongoing uncertainty surrounding the trade war and Donald Trump's clear intention to withdraw from addressing Russian aggression, it is difficult to predict what the situation will look like by then.