Changes in financial policy stimulate industrial production

April 22, 2016 18:44

The National Bank lowered interest rates on corporate loans in order to improve availability of money for businesses and to keep their current operations uninterrupted. This move will entail reduction in the deposit rates and will force the population to reconsider savings in the national currency. However, if Belarus receives substantial external loans, she will have funds to keep the Belarusian ruble afloat and as a result, lower deposit rates may not imply cash outflow from the banking system.

As of January 22nd, annual interest rates on standing facilities liquidity operations reduced from 35 % to 33 %.

High interest rates on corporate loans in BYR (at 45-50 % per annum) have led to corporate debt reduction in the banks in November 2013. High interest rates were used by the National Bank to reduce the pressure on the foreign exchange market ahead of substantial public debt repayment in December 2013 - January 2014, and to minimize the BYR loans conversion into foreign exchange by businesses in order to purchase imported raw materials and equipment.

However, the unavailability of loans has led to an increase in arrears on current accounts and on budgetary payments, as well as to belated wages.

In order to run business uninterrupted, companies need to have access to loans at low interest rates, which will reduce their servicing costs. However, this requires an inexpensive resource base, which is formed by deposits of individuals and legal entities, and budgetary funds. Corporate deposit interest rates were reduced to 35% relatively painlessly. However, BYR deposit rates for individuals cannot be reduced drastically, because it may result in a rapid cash outflow from the banking system and increased foreign currency demand. The overall volume of BYR deposits in the banking system is USD 6.9 billion, and about USD 3.5 billion belongs to individuals.

By reducing rates to support liquidity, the National Bank addresses several problems simultaneously. As the banks get cheaper money from the National Bank, they will gradually review ruble deposits interest rates for individuals downwards. Lower interest rates on loans will improve their affordability for businesses. Lower interest rates will also reduce the risks of bad loans, as they will be less cumbersome for businesses.

In addition, President Lukashenko made several statements regarding the unacceptability of a one-time devaluation. He is anticipating additional loans, which will enable the BYR to devalue gradually, leaving devaluation aside. As a result, people will stop worrying about BYR devaluation and will not respond to a gradual reduction in BYR deposit interest rates by withdrawing cash.

Thus, in the medium term, banks will reconsider their interest rates on BYR deposits. Banks will increase lending to businesses and businesses will meet settlement deadlines. The National Bank will start reducing the discount rate in order to bring it down to 13%-15% per annum by the year-end.

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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.