Mechanisms for hedging inflation risks in the system of macrofinancial stabilization under martial law

Abstract

Abstract. The article examines inflation risk hedging mechanisms in Ukraine under martial law conditions during 2022–2025 within the framework of macro-financial stabilisation. The portfolio nature of wartime inflation risk is substantiated; it is shaped by the interaction of four channels: supply shocks caused by the destruction of production capacities and logistics; monetary financing of the budget deficit; de-anchoring of inflation expectations among households and businesses; and the exchange rate channel through which devaluation transmits into imported inflation. The wave-like dynamics of key macroeconomic indicators are analysed — annual inflation (from 26.6 % in December 2022 to 8.0 % in December 2025), the monetary base (growth to UAH 1,174.53 billion), and the official exchange rate — throughout the period under review. The main inflation risk hedging instruments are systematised across four blocks: monetary, debt, exchange rate, and macroprudential. Within the monetary block, the role of the National Bank of Ukraine's key policy rate as an expectations-anchoring mechanism and liquidity sterilisation operations is elucidated. Within the debt block, the functioning of domestic government bonds as a channel for absorbing hryvnia liquidity and replacing monetary financing is analysed. Within the exchange rate block, the effectiveness of the transition from a fixed rate to a managed flexibility regime and the role of foreign exchange restrictions as a temporary tool for mitigating tail risks are assessed. Formalised indicators for quantitative assessment of hedging effectiveness are proposed. The significance of international financial support as an external stabiliser is demonstrated. The author's position on the optimal combination of hedging mechanisms for a protracted military conflict is formulated.