CBU Reopens the Window for Rate Cuts, NBU Retains the Option to Hike

Overview

This report covers the latest policy meetings of the central banks of Ukraine and Uzbekistan. Ukraine's NBU kept the policy rate at 15% but retained the option to hike due to energy prices, potential inflation pressures, and geopolitical uncertainty; Uzbekistan's CBU kept the policy rate at 14% while reopening the possibility of gradual easing in H2 amid improving inflation expectations and a better external backdrop.

Core views

The core view is that the policy paths of the two countries are beginning to diverge: while the NBU has not tightened for now, its forward guidance is clearly more hawkish, and it is expected to keep rates high for longer and hike if the risk of de-anchored inflation expectations rises; the CBU, by contrast, has sent dovish signals after continued improvement in inflation and expectations, and Deutsche Bank still expects around 100bp of rate cuts within the year, taking the policy rate to 13% by year-end.

Analysis framework

The report mainly assesses the policy rate path through central bank statements, trends in inflation and core inflation, energy and food prices, external financing, FX pressure, real rates, and changes in forward guidance. For Ukraine, it focuses on the impact of war, energy prices, and external aid on inflation and the FX market; for Uzbekistan, it focuses on inflation expectations, second-round effects from tariff adjustments, and the outlook for core inflation.

Methodology notes

• Macro Policy AnalysisCentral Bank Reaction Function

  Assessing the policy rate path through inflation, inflation expectations, external shocks, and FX pressure.

  The policy assessments of both the NBU and CBU revolve around price stability, inflation expectations, and financial conditions, but the NBU is more constrained by war and external financing, while the CBU is more focused on tariff adjustments and core inflation.

• Macro Policy AnalysisForward Guidance Interpretation

  Comparing changes in central bank statement wording to identify hawkish or dovish signals.

  The NBU's emphasis on hiking if necessary constitutes stronger hawkish guidance; the CBU's renewed mention of gradual easing if inflation expectations keep falling, second-round effects remain limited, and core inflation improves constitutes a dovish signal.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ukraine local-currency rates / fixed income

  Affected by the NBU policy rate, inflation expectations, and external financing.

  Strengths

  Increased external aid, higher international reserves, and tight monetary policy help stabilize inflation and the FX market.

  Weaknesses

  Energy prices and war-related shocks may keep inflation pressure elevated, limiting room for rate cuts.

  Comparison

  Compared with the CBU, the NBU's policy guidance is clearly more hawkish and is more likely to keep rates high for longer.

  Risks

  A prolonged US-Iran conflict, another rise in energy prices, weaker-than-expected external aid, or rising FX pressure.

• Ukraine FX / UAH assets

  FX pressure is determined by external funding inflows, reserve accumulation, and demand for local-currency assets.

  Strengths

  The NBU expects external financing to be sufficient to support the budget deficit, increase international reserves, and preserve FX market sustainability.

  Weaknesses

  The economic and military situation remains highly dependent on external aid and geopolitical developments.

  Comparison

  Compared with Uzbekistan, Ukrainian assets are more affected by the war, the pace of aid, and energy prices.

  Risks

  Aid delays, conflict escalation, energy shocks, and weaker demand for UAH assets.

• Uzbekistan local-currency rates / fixed income

  Affected by CBU rate-cut expectations, real rates, inflation expectations, and changes in core inflation.

  Strengths

  Improving inflation and inflation expectations, positive real rates, and more balanced credit growth create conditions for gradual easing.

  Weaknesses

  Aggregate demand remains strong, and the June energy tariff increase may create short-term inflation pressure.

  Comparison

  Compared with the NBU, the CBU's guidance is more dovish, and Deutsche Bank expects around 100bp of cuts within the year.

  Risks

  Second-round effects from tariff adjustments exceeding expectations, food and energy price volatility, and failure of core inflation to improve.

Key data

• NBU policy rate15%The central bank stayed on hold at this week's meeting, but explicitly retained the option to hike if necessary.
• NBU's previous easing move50bp rate cut in January 2026It had previously started a tentative easing cycle, but later turned more cautious due to the US-Iran war and rising energy prices.
• Potential external funding inflows for Ukraineup to around USD 13bnThe NBU estimates that in June these may come from the EU Ukraine Support Loan, the G7 ERA program, and a new IMF disbursement.
• CBU policy rate14%It remained unchanged again this week and has stayed on hold since a one-off 50bp hike in March last year.
• Uzbekistan headline inflation in May5.5%The decline was mainly driven by a high base effect from last year's utility tariff adjustment.
• Uzbekistan core inflation in May5.7%Core inflation was slightly above headline inflation, while underlying inflation components were broadly stable.
• CBU year-end inflation forecastaround 6.5%The CBU maintained its forecast for year-end inflation.
• Deutsche Bank's CBU rate forecastaround 100bp of cuts within the year to 13%Easing is expected to emerge gradually in H2.

Impact & implications

For investors, Ukraine local-currency rates and FX assets still need to price in higher-for-longer rates and tail risk of a potential hike, although improved external financing could support reserves and FX stability; Uzbekistan's rates market is more likely to benefit from H2 rate-cut expectations, but that path depends on continued easing in inflation expectations, contained second-round effects from energy tariffs, and improvement in core inflation.

Risks

• If the US-Iran war lasts longer, it could push up energy prices and intensify inflation pressure in Ukraine.
• If Ukraine's external financing falls short of expectations, it could weaken budget financing, reserve accumulation, and FX market stability.
• Uzbekistan's June energy tariff increase could generate second-round inflation effects through transportation and production costs.
• Volatility in global food and energy prices could feed through to domestic prices.
• If inflation expectations rise again, the NBU may need to hike, and the CBU's rate-cut path could also be delayed.

What to watch

• The NBU's July macro forecast and next policy decision.
• Actual receipt of Ukraine's external financing in June, including funds from the EU, G7 ERA, and IMF.
• Energy prices, harvest-season food supply, and the trajectory of Ukraine's headline and core inflation.
• Ukraine's international reserves, FX market pressure, and demand for hryvnia assets.
• Changes in the CBU's wording in future statements regarding inflation expectations, core inflation, and second-round tariff effects.
• Whether Uzbekistan starts cutting rates in H2 and whether the pace is consistent with the expected roughly 100bp.