NBU Inflation Report: a new narrative — weapons production as the growth story

UKRAINE - In Brief 07 Aug 2026 by Dmytro Boyarchuk

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The NBU has released a new Inflation Report, which marks a significant shift in tone compared to what we've seen from the central bank previously. The first point relates to the worsened inflation outlook already flagged in the NBU's communications following the Board's decision on the key policy rate. Monetary authorities are disregarding the recent easing in inflation and instead point to the potential for inflation to strengthen on the back of renewed tension in the Strait of Hormuz, the effects of depreciation pressure, and a possible expansion of the budget impulse. Against this backdrop, the NBU has revised its CPI forecast upward to 10.0% ytd and 8.2% y/y in 2026, from 9.4% ytd and 8.0% y/y estimated in April. However, a far more substantial change was in the NBU's narrative on general macro trends, which had previously been cautiously pessimistic following the intense air strikes over the winter months and amid the difficult process of securing external financing for 2026-2027. Now the NBU is describing what I'd call a revolutionary shift in economic policy, with a strong new emphasis on localizing military production and on expanding budget spending aimed at purchasing locally produced weapons, funded through the Ukraine Support Loan. This policy shift effectively explains a curious pattern in the macro numbers: even as the NBU dramatically expands its trade deficit projection (for 2026, it projects a trade deficit of $89 billion, well above our own comparatively pessimistic estimate of $79 billion), it simultaneously projects growing gross international reserves, rising to $69.7 billion in 2026 and $73.7 billion in 2027. The NBU explains that under the Ukrain...