The National Bank attempts to keep BYR afloat
Interbank market soared to 55% on overnight loans for residents. Such interest rates are prohibited for credits and can result in problems with calculations. In the meanwhile, using such rates, the National Bank is trying to solve a major problem: to keep the BYR within the planned margins.
On October 10th, 2012 National Bank Chairman Mrs. Ermakova said the policy of restricted support to liquidity in the interbank market would be preserved.
A month since interest rates in the interbank market started increasing, overnight loans rates for residents soared from 20% to 55% per annum. Excess liquidity in the market has disappeared. There is a BYR 1 trillion liquidity shortage, banks say. Additional transactions to provide liquidity for a number of state-owned banks were made to pass the calculations.
On October 15th, 2012 evaluation mission of the EurAsEC Anti-Crisis Fund starts working in Minsk. Belarusian authorities anticipate a favorable decision regarding the allocation of the fourth tranche, which could be made in December 2012. On October 18th, IMF post-programme monitoring mission will start working in Belarus. The National Bank needs to demonstrate that it manages the situation with all the loans in the country’s economy, which have already reached the limit set for 2012, and to reduce the devaluation expectations in the foreign exchange market.
The foreign trade failure, recorded in August, was a coincidence and further balance will be adjusted for the better. Refining and petroleum products export supply in August and September were down due to planned maintenance work, and in October the situation will start improving. However, the suspension of lubricants and solvent export schemes and of biodiesel supply will not allow the foreign trade performance results to reach those in the first half of 2012. Foreign exchange deficit will reduce, but the National Bank’s reserves cannot be replenished at the cost of businesses and households any longer.
For the National Bank it is more important to meet the performance parameters in the scope of its responsibility, which include the gold reserves, exchange rate policy and loans’ volume in the economy. By increasing the standard for required reserves the National Bank has withdrawn part of the excess liquidity, while the population and businesses, fearing currency risks, opted to transfer part of their BYR assets in foreign currency, which has resulted in a liquidity shortage. This simultaneously solves two National Bank’s problems. Banks are compelled to sell currency to comply with the required reserves standard and new loans at such rates become unattainable to enterprises.
Thus, the National Bank is addressing its own problems at this stage. However, the way it deals with them, could lead to increased inflation in the future and possible problems with settlements, which, in turn, could entail pressure from the Council of Ministers, because extraordinary high rates disrupt GDP plans for 2012. Therefore, during crisis each government agency only deals with tasks within its scope of responsibility. Even at the cost of new problems in the economy.