Inflation report: NBU sidesteps discussion on 2025’s potential defining event

UKRAINE - In Brief 04 Feb 2025 by Dmytro Boyarchuk
The NBU released its latest inflation report last Friday and held an expert discussion on the document today. The best way to describe the report would be ‘indistinct.’ The inflation forecast was revised upward to +8.4% YTD in 2025 (from the previously projected 6.9%), while the GDP growth forecast was lowered to +3.6% (down from 4.3%). The primary reason: weaker-than-expected performance in 2024. The NBU had projected CPI growth of 9.7% for 2024, but actual inflation reached 12%—with concerns that consumer inflation has now exceeded the 10% threshold. Similarly, GDP growth was initially forecast at +4.0%, but provisional estimates put it at just +3.4% for the year. On top of that, the NBU reaffirmed its intention to tighten monetary policy to curb rising inflationary pressures. Beyond that, the NBU reiterated the same updates we've been discussing for months, including the expected $38.4 billion in external funding for 2025 and a central budget deficit of 20.4% of GDP (excluding grants). What seems to be missing from this report is any substantive analysis by the NBU regarding potential scenarios related to Donald Trump's peace deal efforts. While the NBU briefly acknowledges the possibility of a ceasefire, this development—whether it happens or not—could be the defining event of 2025, significantly impacting all aspects of Ukraine's economy, including migration, the FX market, and inflation. Moreover, its effects may not necessarily be positive. Of course, no one can predict the exact outcome of Trump's policies, but at the very least, the NBU could outline its strategy in case events take an unfavorable turn for Ukraine.

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