Belarusian National Bank set to reduce public debt servicing costs

January 09, 2017 10:13
www.belrynok.by

The National Bank has decided to change the size of mandatory deductions to the reserve fund. Due to an increase in people’s expenses in 2016, the Belarusian international reserves grew and all due public and domestic debt payments were made. By reducing interest rates on currency deposits, the NB would save circa USD 25 million to refinance public debt.

As of February 1st, 2017, the National Bank will increase the size of compulsory contributions by banks to the reserves fund from corporate and private foreign assets from 7.5% to 11%, and will reduce the contributions in national currency from 7.5% to 4%. When the new rules take effect, banks’ cost of fundraising in foreign currency will increase, which will reduce interest rates on foreign currency deposits. Simultaneously, banks may leave interest rates on rouble deposits unchanged, so as the discount rate will reduce from 18% to 17% per annum as of January 18th, 2017.

In 2016, the National Bank increased its gold reserves by USD 751 million from USD 4.175 billion to USD 4.927 billion, while paid its due international and domestic debt, which totalled circa USD 3.3 billion in early 2016. Foreign currency inflow was provided by raised utility costs for the population, reduced soft loans and reduced interest rates on all types of deposits. The interest rate on rouble deposits decreased from 23% to 13% per annum and on currency deposits - from 3.7% to 2% per annum. This made households to spend more and earn less to due to lower income from deposits. In January - November 2016, the population sold USD 1.8 billion net, and the National Bank bought a part of this sum from the banks to refinance its debt.

By reducing the interest rate on currency deposits, and retaining the interest rate on rouble deposits, the National Bank aims to solve two tasks. First, amid reduced profitability of currency deposits, some depositors may decide to convert their currency funds to the national currency and place it in the banking system, thereby boosting foreign currency supply on the domestic currency market. Second, by reducing rates on foreign currency deposits by 1 per cent, the National Bank will reduce the annual yield of currency depositors by USD 74.5 million. Due to deficit of reliable borrowers, banks will invest foreign currency deposits of the population in the National Bank bonds. By setting a lower interest rate on its bonds, the National Bank will save money for refinancing its current debt, which relates to the obligations of the state. Throughout 2016, interest rates on the NB bonds dropped from 7% to 5% per annum and due to the NB efforts, may reduce to 4% per annum or lower by late 2017, enabling the NB to save circa USD 25 million.

Overall, by reducing deposit interest rates, the National Bank reduced profitability of deposits and increased its international reserves in 2016. Due to the need to increase the international reserves by USD 0.5 billion in 2017 and to reduce public debt servicing costs, the National Bank is likely to pursue its current policy aiming to reduce currency deposit profitability and interest rates on government bonds may reduce to 4% per annum.

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.