In 2022-2025, Ukraine’s GDP recovered only 77% of its “pre-war level,” and in the first half of 2025, economic growth was significantly lower than the IMF, Ukrainian government, and NBU forecasts. The National Bank’s monetary policy does not fuel economic growth, but rather restrains it, says Bohdan Danylyshyn, former chairman of the NBU Council and professor at the Vadym Hetman Kyiv National Economic University.
How effective is the NBU’s monetary policy for the economy and whether it should be changed
The NBU has maintained a tight monetary policy in Ukraine almost continuously for the past 8 years. Bohdan Danylyshyn believes that this is a key factor in suppressing economic activity and reducing the competitiveness of Ukrainian producers. In the first half of 2025, Ukraine’s GDP grew by only 0.8% year-on-year, which is significantly lower than the updated IMF, government, and NBU forecasts, which fluctuate around 2% per year.
According to Danylyshyn, the level of the interest rate set by the NBU has almost no effect on economic growth:
- production costs have increased due to the increase in tariffs for energy supply and transportation;
- the weather changes regardless of the level of the discount rate;
- the devaluation of the hryvnia is determined not by market fluctuations, but by the NBU’s managed currency interventions, as well as global “tariff wars”.
“The impact of the interest rate on consumer spending by the population remains very limited – term hryvnia deposits by the population account for only 5% of GDP,” the former chairman of the NBU Council noted.
Danylyshyn also says that the NBU’s monetary transmission is weak – this is the process through which the Central Bank’s decisions (for example, a change in the discount rate) gradually affect the economy: on the cost of loans, the hryvnia exchange rate, investments, consumption and ultimately – on inflation.
“The inability of the NBU’s interest rate policy to influence the price level is due to the weakness of the monetary transmission channels, which are either completely absent or have such an insignificant size that they are unable to transmit interest rate impulses to the markets of goods and services, where inflation and inflationary expectations are formed,” Danylyshyn noted.
The NBU explains the stagnation in the economy primarily by the shortage of labor in the labor market. According to Danylyshyn, the level of utilization of production capacities in industry is only 66%, and this shortage “is the result of a physical reduction in labor resources, and not an increase in market demand for them.”
“To justify the high rigidity of monetary policy, the NBU resorts to outright manipulations, declaring that the economy has reached its potential production level due to a shortage of labor. Such statements are completely unfounded…” said the former chairman of the NBU Council.
Danylyshyn also believes that during wartime, more effective tools for containing inflation are the use of administrative restrictions (fixing tariffs, fixing the exchange rate) than monetary policy.
In addition, according to him, the NBU should curtail its policy of containing inflation by “increasing the attractiveness of hryvnia assets.” The potential of monetary policy should be used to develop:
- lending and investments to increase the supply of domestically produced goods;
- recovery investment projects;
- stimulating the return of refugees;
- improving the foreign trade balance.
“Fundamental price stability should be formed by eliminating shocks from the supply side, and not by compressing demand,” Danylyshyn said.
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