Ukraine’s Inflation Targeting Journey: Building Resilience Through Monetary Reform

Ukraine’s central bank marked a decade since a bold overhaul of its monetary policy framework, reflecting on the transition to inflation targeting and the far-reaching effects of this strategy amid persistent uncertainty and severe economic shocks.

Ten years ago, Ukraine was in the grips of a triple crisis—banking, macroeconomic, and balance-of-payments—further exacerbated by geopolitical turmoil and currency collapse. Faced with surging inflation exceeding 60% and a fragile financial system, the National Bank of Ukraine (NBU) shifted decisively in 2015 from an outdated, fixed exchange rate regime to a forward-looking inflation targeting (IT) model. This transition was anchored by global best practices and driven by a renewed political will to stabilize the economy and restore public trust.

Central to the new approach was a clear, irrevocable inflation target of 5%, operational independence for the NBU, a robust suite of analytical and forecasting tools, and a commitment to transparent communication. Over the years, the NBU moved away from ad hoc, politically influenced decision-making and embraced a systematic, collegial process focused on credibility and accountability. Regular press conferences, detailed inflation reports, and published meeting summaries transformed the bank into one of the world’s most transparent. These reforms culminated in tangible results: inflation fell sharply from crisis highs to meet targets, inflation expectations became better anchored, and international reserves rebuilt. Notably, the IT framework proved flexible enough to weather various shocks, including a post-pandemic surge, the full-scale war in 2022, and ongoing macroeconomic challenges.

The outbreak of war in 2022 forced a temporary return to exchange rate controls and strict capital management, highlighting the NBU’s ability to adapt policy to crisis circumstances. Nonetheless, the core IT philosophy—anchoring expectations and responding transparently to shocks—remained intact. The NBU subsequently moved toward a managed exchange rate and flexible inflation targeting as conditions stabilized, further illustrating the regime’s adaptability.

Beyond inflation itself, the regime fostered greater financial stability, reduced dollarization, lowered corporate borrowing costs, and diminished output volatility—all while solidifying trust in the institution’s independence and policy consistency. The central bank’s experience demonstrates that initiating reforms—even under less-than-ideal circumstances—can set the stage for long-term credibility and resilience, as ongoing policy evolution continues to balance price stability with economic recovery needs.

Ultimately, the Ukrainian experience underscores inflation targeting’s power as both a stabilizing anchor and a flexible guide, preparing the economy for a future defined by persistent uncertainty and rapid change.