Changes in financial policy stimulate industrial production
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.
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.