National Bank to boost interest in foreign currency deposits

April 22, 2016 19:28

In August, the population withdrew more than 10% of the total volume of rouble deposits from the banking system. Given the limited financial capacity, the National Bank has not prevented depreciation of the Belarusian rouble, which has led to the conversion of rouble deposits into foreign currency. The regulator has supported the rouble liquidity and may introduce measures to boost interest in foreign currency deposits in order to stimulate currency inflow to the banking system. 

According to the National Bank, in August 2015, fixed-term deposits in the national currency decreased by 11.8% or by BYR 4 trillion and transferable deposits of the population decreased by 14.8%, or by BYR 2.3 trillion. The population spent most of this money on foreign currency. Unlike before, the population has not returned the purchased currency to the banking system by placing foreign currency deposits. The increase in foreign currency deposits in August was only USD 162.2 million. The remainder was placed outside the banking system. 

The outflow of money from the banking system is linked with the national currency devaluation. The rapid decline in oil prices has led to weaker Russian rouble against the US dollar and the Euro, which, taking into account the 40% share of the Russian rouble in the currency basket, has led to 15% devaluation of the Belarusian rouble against the US Dollar. Amid languishing gold reserves and the need to repay foreign public debt, the National Bank was unable to restrain the devaluation of the Belarusian rouble. After a 20%-devaluation in January 2009, the population spent most savings on non-food items, which had mitigated the currency market situation. In 2015, the population is changing tactics: customer demand for consumer goods has not grown, as people prefer keeping the purchased currency at home in anticipation of further devaluation. 

The outflow of funds from the banking system has prompted the National Bank to provide liquidity support to banks at 29% per annum, which has led to an increase in interest rates on rouble deposits for the population to 30% per annum. Meanwhile, the problem of returning people’s foreign currency to banks still exists. It has already led to a decline in gold reserves to USD 4.6 billion. Currently the Belarusian rouble has suspended its fall due to the stabilisation of the Russian rouble against US Dollar. This means, the interest of citizens in the further conversion of rouble deposits may reduce. 

The population would bring the foreign currency back to the banks is currency deposit interest rates increased up to 6-6.5% per annum. In addition, the National Bank may borrow currency on the domestic market in order to stabilise the gold reserves. When the domestic currency market situation stabilises, interest rates on currency deposits will decrease until further fluctuations in oil prices. Should Belarus receive new loans, she will not spend them on supporting the national currency. 

Due to external factors, the National Bank was unable to continue to reduce interest rates on deposits and tension on the currency market was created. Amid limited foreign exchange resources, the National Bank will attempt to keep people’s currency savings in the banking system by increasing currency deposit interest rates, rather than spending reserves in order to support the national currency.