Affordable corporate loans may put pressure on financial market
The National Bank led other banks to an agreement about a single level of interest rates on corporate deposits. The ultimate goal of this agreement is to ensure affordable loans in the economy. However, such drastic measures may have an unpredictable impact on the currency market.
Belarusian banks signed a memorandum envisaging reduction of corporate interest rates on rouble deposits to 35% per annum. The National Bank denied its influence on this agreement.
Deposit interest rates for individuals are higher than corporate ones due to greater flexibility of individuals’ investment assets.
With interest rates reduced, companies have several options. Firstly, to accept the reduced interest rate on deposits due to overall economic slowdown. Secondly, to hedge devaluation risks by purchasing foreign currency in order to buy raw materials abroad or inside Belarus.
If companies agree with lower interest rates, money will remain in the banking system and may be used to issue loans at lower interest rates to companies, which experience an acute shortage of working capital. In other cases, in order to replenish the banking system liquidity, the National Bank will have to switch on money print to issue loans.
If commercial banks gain constant access to the National Banks’ liquidity, they will no longer need to use high interest rates on rouble deposits to attract money from the population and will start lowering them. In response, the population’s demand for foreign currency will increase sharply. In addition, the situation may be exacerbated by a possible increase in demand for currency by legal entities.
In addition to devaluation expectations, the main suppliers of raw materials from Russia will resume operations only by mid-January 2014, which means that Belarusian producers will have to stock up with raw materials and products to ensure uninterrupted operations in early January. This also means producers will have greater demand for foreign currency. It is worth mentioning that substantial external debt repayments are also due in December 2013 and January 2014.
Belarus, however, has not announced that additional foreign exchange resources will become available in the immediate future. Its international reserves have fallen below $6.5bln. As a result, Belarusians should anticipate various restrictions on purchase of foreign currency and depreciation of Belarusian rouble.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.