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.
The Belarusian authorities regard the Catholic conference as yet another international event to promote Minsk as a global negotiating platform. Minsk’s proposal to organise a meeting between the Roman-Catholic Church and the Russian Orthodox Church is rather an image-making undertaking than a serious intention. However, the authorities could somewhat extend the opportunities for the Roman-Catholic Church in Belarus due to developing contacts with the Catholic world.
Minsk is attempting to lay out a mosaic from various international religious, political and sportive events to shape a positive image of Belarus for promoting the Helsinki 2.0 idea.
Belarus’ invitation to the head of the Holy See for a meeting with the Patriarch of the Russian Orthodox Church should be regarded as a continuation of her foreign policy efforts in shaping Minsk’s peacekeeping image and enhancing Belarus’ international weight. The Belarusian authorities are aware that their initiative is unlikely to find supporters among the leadership of the Russian Orthodox Church in Moscow. In Russia, isolationist sentiments prevail.
In addition, for domestic audiences, the authorities make up for the lack of tangible economic growth with demonstrations of growth in Minsk’s authority at international level through providing a platform for religious, sportive and other dialogues.