National Bank ‘eases’ measures to curb inflation to maintain gold reserves

April 22, 2016 18:34

On July 10th, the National Bank issued a statement that the discount rate would remain unchanged in July 2013.

The National Bank had formal reasons to reduce the discount rate. However, if continued into July, this measure would have negatively affected the currency market. Therefore, the National Bank chose to sacrifice the discount rate for the sake of maintaining the gold reserves level at USD 8 billion.

Until recently, the National Bank was continuously reducing the discount rate, justifying this by reduced inflation rate in Belarus. The reduction was carried out with the aim of preserving positive interest rates in the national currency in the economy. Inflation stood at 0.3% in June, while in the first half of the year it was at 7%, which allowed the National Bank to reduce the discount rate to 15-16% per annum. This level ensures positive rates in the economy (above inflation rate) and will allow discount rates to be reduced to 13-15% by the year’s end.

However, due to the sudden change in the foreign exchange and deposit markets, further reduction of the discount rate in July is not feasible. In June individuals were net foreign currency buyers. A stronger U.S. Dollar in world markets against major currencies at constant values of the NB currency basket has resulted in the Belarusian ruble depreciating against the US Dollar. Belarus’ population pays attention to US Dollar exchange rate fluctuations regardless of the currency basket rate. In light of falling incomes on national currency deposits, depreciation of the ruble against the dollar has resulted in an outflow of deposits from the banking system and a sharp decline in liquidity in the banking system.

The National Bank’s choice was predictable. Discount rate reduction would speed up the outflow of deposits from the banking system, since some of the deposits were at floating interest rate which depended on the discount rate. The population would invest their rubles in cash foreign currency. Bearing in mind the peak payments of over USD 400 million on external public debt in July, , additional demand for the currency would result in national reserves falling below the USD 8 billion margin. The National Bank has chosen to maintain the gold reserves, rather than not meet the discount rate reduction plan. In this way, it expresses its monetary policy priorities.

Regardless of governmental pressure to reduce loan interest rates in the economy, the National Bank was able to convince the country’s leadership that preserving gold reserves was a priority. The National Bank will continue to monitor Belarus’ currency market, adjusting it accordingly and will abandon harsh control over inflation processes. 

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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.