Week's balance: Cabinet reports on year's work, launches cheap mortgage campaign, while NBU raises key rate

15:20, 08.03.2021
4 min.

The National Bank, after two and a half years of gradual reduction, unexpectedly raised its key rate to 6.5%, Ukrainians have been offered to get mortgage loans at 7%, while the Cabinet reported on its performance over the year of its work – these are the main economic news of the past week.

The first week of spring wasn't rich in economic events but still, it outlined several important trends that will prevail in 2021.

The main one is the continued COVID-19 pandemic, which has had a significant negative impact on the domestic economy and people's lives in general. Prime Minister Denys Shmyhal reacted to the deteriorating corona stats observed since February, saying the third wave of the pandemic covered Ukraine.

The country has finally launched the vaccination campaign but Shmyhal says, for herd immunity to be formed, up to 70% of the population must either be vaccinated or infected.

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Meanwhile, as per the Cabinet's plans, from 20 million to 22 million Ukrainians will be vaccinated in 2021-2022, which is just below 50% of the population.

"There are no illusions. Coronavirus is out there, so we will have to live along with it for a certain period of our lives. It could take months, perhaps years. The way out is solely through vaccination or total strict quarantine measures throughout the whole period of the virus' existence. It is clear that no one wants quarantine, which means there will be vaccinations," the head of government said.

Higher key rate

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Another important announcement this week came from the National Bank which raised the key rate from 6% to 6.5% – for the first time since September 2018.

"The Board of the National Bank of Ukraine has decided to raise the key rate to 6.5% per annum. This decision is aimed at the gradual return of inflation to the target range in the context of the recovery of both the global and Ukrainian economies," the NBU commented.

It is worth noting that both the government, the National Bank, and economic experts agree that inflation will grow in 2021.

For example, Prime Minister Shmyhal recently said that its pace may hit 6% by year-end, while at the end of 2020 inflation stood at 5%, and in 2019 it was 4.1%.

In turn, Fitch believes that by the end of the year inflation will almost reach 7%.

By the end of January, consumer prices accelerated to 6.1%. The National Bank has no doubts that inflation will keep growing and reach its peak values ​​in the middle of the year.

Towards the end of 2021, the trend should decline, and in the first half of 2022, the NBU expects inflation to return to its previous positions – between 4% and 6% percent.

The NBU admits that they are ready to tighten monetary policy if inflationary pressures intensify.

Launching affordable mortgage

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This week the government started implementing President Volodymyr Zelensky's initiative on affordable mortgage loans for Ukrainians at 7% per annum.

At the Ukraine 30 Forum, the first two families received long-sought loans to buy own homes.

During the signing of contracts, Deputy Finance Minister Yuriy Drahanchuk emphasized that the program is designed for all citizens who need to improve their living conditions.

"The subject of a mortgage loan can be either a house or an apartment. Our program is designed for both secondary and primary real estate market. The maximum loan amount is UAH 2 million, the maximum term is 20 years, and the minimum initial payment is 15%," he said.

The Cabinet expects that some 5,000 Ukrainian families will take the offer in 2021.

"An agreement was signed between the State Fund for the Development of Entrepreneurship and seven Ukrainian banks on participation in the Affordable Mortgage program. We expect that at the start of the program this year alone, its volume will amount to UAH 5 billion, and about 5,000 families will be able to use it," PM noted.

Judging by the statements of the head of state, it is quite possible that these figures may grow significantly, and Affordable Mortgage will add up to the president's main initiative, "Big Construction".

"Mortgage will be at 7%. We will streamline this program every month so that more people can join. In general, we understand that there is an economic boom in Ukraine, a credit and mortgage boom, I think, maybe, when the interest on the loan will be 5%, the mortgage will be 5%," Volodymyr Zelensky said, announcing the program launch

By the way, the government is now developing a separate leasing program, thanks to which public sector workers will be able to expect to receive a mortgage loans at 5% per annum.

Year of government work

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Last week, the Cabinet celebrated the first anniversary of its work. It is clear that due to the pandemic and the ensuing crisis, no one expected the government to boast of any special achievements, so the main one is ensuring that the economy hasn't declined as bad as some experts had predicted.

PM Shmyhal in his report noted some positive moments in his team's work. Of course, he could not fail to mention the implementation of the presidential program "Big Construction", within the framework of which, in 2020, roads and social facilities were built, repaired, and reconstructed.

"By the end of the year, a record number of roads were repaired within the framework of the program – almost 6,500 kilometers. According to NBU estimates, the effect of investments in infrastructure amounted to 1.5% of GDP," the prime minister emphasized.

The head of government also noted the "5-7-9" program of concessional lending, which today has become a universal way for the government to feed the weakening Ukrainian businesses with some money. By the way, it was with its help that the government began to issue mortgages at 7%.

"In May and June, we made significant changes to the 5-7-9 program. After the restart of the president's program, loans worth UAH 20 billion were issued for almost 9,000 businesses in six months. Small and medium-sized businesses have gained access to 'cheap money'," he said.

Shmyhal also referred to the achievements of the launch of the Diia portal, indexation of pensions, the start of a portfolio guarantee program for businesses, and an increase in the minimum wage to UAH 6,000.

To strengthen the hope of Ukrainians for a better future, the Cabinet this week approved the National Economic Strategy until 2030. It has been actively discussed since the end of January, and the final draft, Shmyhal says, defines strategic steps for the development of the national economy in the coming years. The implementation of the strategy, as its authors expect, will allow the country's GDP to at least double.

"This is a comprehensive document that should bring Ukraine into the club of developed, successful economies. This is the first such fundamental document in the history of Ukraine, developed with the involvement of experts, scholars, officials, and lawmakers. This is an ambitious vision of a future Ukraine and a very clear roadmap that will change our country," Shmyhal said.

In addition, last week the Verkhovna Rada adopted two laws that develop a new concept of "investment nannies". The first one grants the right to duty-free imports of equipment that will be used for the implementation of large investment projects. The other one provides tax incentives to large investors – they amount to up to 30% of the investment volume for the term of up to five years.

This week, farmers will continue the sowing campaign, while medics will continue vaccinating the most vulnerable population groups. People's deputies will work in committees, while the State Statistics Service will publish inflation data in February.

Dmytro Shvarts

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