The National Bank continues the policy of reducing interest rates and flexible exchange rate management

April 22, 2016 18:07

The Board of the National Bank decided to reduce from 2 April 2012 the refinancing rate by 2 percentage points to 36 percent per annum. The National Bank began the reduction of the refinancing rate on February 15, when the rate fell from 45% to 43% per annum. On March 1, 2012 the rate dropped by 5 percentage points to 38% per annum. 

The demand for dollars exceeded supply in March. In order to prevent the weakening of the Belarusian ruble, the National Bank had to resort to small foreign exchange interventions. 

Comment

The National Bank is gradually lowering interest rates against a background of strengthening positive trends in the economy and the monetary sphere. The high cost of credit slows investment activities of enterprises and the buying activity of the population. However, the rate should correspond to the average annual inflation rate. Belarus also began the policy of reducing interest rates without waiting for their alignment with the average annual inflation. Thus, we can state the beginning of the end of the tight monetary policy and attempts to find compromises between the demands of Lukashenko on cheaper loans and the requirements of the EEC on the conservation of tight monetary policy. 

Gross demand for dollars exceeds supply by almost 94 million USD at the BCSE (Belarusian Currency and Stock Exchange) auction in the period from 1 to March 26. According to logic, the rate of the Belarusian ruble against the U.S. dollar should have reduced. But in practice, it has grown, albeit modestly. At the same time inflation amounted to about 5% since the beginning of the year, while the ruble has not depreciated over the same period, but rose against the dollar by more than 4%. Such multidirectional movement is dangerous and harmful from the perspective of a competent economic policy.

Indicators of money are actively growing, which sooner or later will lead to pressure on the currency market. Thus, in February the amount of cash (an indicator of M0) increased by 12.7%, monetary aggregate M1 - 13.4%, ruble money supply (M2) - 9%.

And this is before the planting season, which will require about 10 trillion rubles. 

Further reduction in interest rates on deposits and new incentives for economic growth through cheap loans for industry, agriculture and construction may, in the near future, lead once again to imbalances in the currency market, if the demand for currency increases sharply.

At the same time, the supply of currency is almost not growing, we should not forget about more than $ 18 billion, which the authorities will need to service external debt.