Foreign currency exchange: expansion of the currency corridor

April 22, 2016 17:52

On 12 May the National Bank of Belarus expanded the corridor for the Belarusian ruble rate deviation against a basket of currencies (US Dollar, Euro, Russian ruble) from 8% to 12%.

Comment 

Expansion of the corridor was the right decision, it made the exchange rate policy more flexible, however, it was insufficient, given the balancing rate was far above the upper margin level set by the National Bank. 

Plurality of exchange rates distorts the economic picture and has negative impact on both, importers and exporters. Moreover, it affects insurance, leasing, construction and other companies, as their customer contracts are tied to the official exchange rate. Currency risks and uncertainty lead to higher prices and to degradation of variety of goods.

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The country's leadership has instructed the local authorities to raise minimum wages at enterprises by the end of 2019 to BYN 1,000, which would lead to an increase in the average wage in the economy as a whole to BYN 1 500. The pace of wage growth in 2017 is insufficient to ensure payroll at BYN 1000 by late 2017 without manipulating statistical indicators. In order to fulfil the president’s order, the government would have to increase budgetary expenditures on wages in healthcare and education, enterprises – to carry out further layoffs and expand the practice of taking loans to pay wages and restrict investment in modernisation of fixed assets. In 2010, the artificial increase in wages led to a threefold devaluation in 2011, an increase in the average salary to BYN 1500 will not match the capabilities of the economy and would lead to yet another devaluation.