Page 24 - Ukraine OUTLOOK 2025

Inflation in Ukraine accelerated to 11.2% in November. Consumer prices in Ukraine rose by 1.9% in November 2024. Annual inflation (November 2024 to November 2023) accelerated to 11.2% compared with 9.7% in October, the State Statistics Service of Ukraine reported.
Since the beginning of 2024, consumer prices have risen by 8.4%. In October, food and non-alcoholic beverage prices increased by 3.2%. Vegetables and eggs rose in price the most, by 18.2% and 18.1% respectively. Prices for alcohol and tobacco rose by 1.8%, with prices of tobacco products climbing by 2.6%. A 1% uptick in prices in the healthcare sector stemmed from a rise in prices for hospital services of 1.3% and 1.2% for outpatient services. Prices for transport increased by 0.5% due to higher prices for fuel and lubricants of 0.8% and travel by road passenger transport of 0.7%. According to the NBU's forecast, at the beginning of 2025 inflation will temporarily cross the 10% mark, but by the end of the year it will decrease to 6.9%.
• 4.2 Monetary Policy
The National Bank of Ukraine (NBU) surprised analysts by raising its key policy rate by 50 basis points to 13.5% in December, given the expectation of easing inflation in 2025. The rate hike reflects the central bank's cautious stance amid lingering inflationary pressures and aims to safeguard household deposits from eroding purchasing power.
Balancing inflation risks and deposit rates: The NBU justified its decision with two primary objectives: “It wanted to send a signal that it takes the evolving inflationary risks seriously, and it wants to encourage banks to increase rates on retail deposits somewhat so that they remain in positive territory on an ex-ante basis if assessed against inflationary expectations of households,” ICU analysts noted.
The decision comes as inflation has accelerated sharply in the last months of 2024, reaching 11.2% y/y in November, driven by food prices and utility tariff hikes. However, with inflation expected to decelerate significantly next year, the rate hike appears to be a precautionary measure rather than a reflection of entrenched inflation risks.
The move also coincides with a rise in the military levy, which climbed from 1.5% to 5% following a sharp increase in taxes in the second half of 2024 to plug a $12bn hole in the budget. The higher tax burden, applicable to interest income on deposits, reinforces the need for nominal deposit rates to remain attractive to savers.
Limited impact on monetary policy outlook: Despite the latest hike, the central bank is expected to reverse course in the second half of 2025 as inflationary pressures ease. “We think any increase in the key policy rate will be short-lived, and a switch to a monetary-policy easing cycle is nearly certain in 2H25,” ICU predicted, forecasting the key policy rate to fall to 12% by
24 Ukraine OUTLOOK 202 www.intellinews.com