The National Bank has made a choice in favor of monetary policy tightening
On August 13 the decision was made during the meeting of the management board of the National Bank ‘to maintain rigid interest rate policy’ which virtually means the suspension of further refinance rate cuts.
The National Bank virtually gave up its earlier plans to decrease the refinance rate reaching 13-15% this year. The reasons: significant drop in export foreign currency revenue, the lack of sources for new external loans. In such a situation, against the backdrop of growing devaluation expectations, further support of the governmental policy targeted at stimulation of the GDP growth based on large-scale ruble loans, threatens to seriously destabilise the financial market.
The National Bank justified this decision by the need to ‘keep a balanced condition of the financial market and curb inflation’. Besides, as underlined in the official statement by the National Bank, ‘sustaining the high level of profitability of ruble deposits which significantly outstrips profitability of deposits in foreign currency will promote ensuring sustainable growth of ruble savings in banks’.
Just as a reminder, the refinance rate was reduced four times this year, dropping from 30% annual rate in March to the current 23.5% annual rate. The rate was expected to decrease to 13-15% by the end of the year. These plans were adopted under the pressure of the government striving to improve the disastrous statistics of the GDP growth by increasing lending to the industrial sector. Still, growing accessibility of ruble credits has led, as expected, to decreasing interest rates on ruble deposits. Which, in turn, has been translated into a sharp increase of the foreign currency demand both on behalf of companies and natural persons and the outflow of ruble funds from deposit accounts against the backdrop of a new wave of devaluation expectations. As a result, population itself purchased USD 621 mln on net basis in July while ruble deposits decreased by BYR 3.28 trn.
By mid July the banking system faced the substantial shortage of ruble liquidity (about BYR 3 trn), interbank credit rates leaped from 21.7% to 60.9% in the course of two weeks. Large-scale injections of ruble liquidity in the form of lombard credits and bilateral swap-transactions allowed the National Bank to curtail panic in the market. Dropping inter-bank credit rates reached 21-25% by early August, and as a result commercial banks had to artificially boost deposit rates up to 35-38%.
Thus, the National Bank actually abandoned earlier declared plans to decrease the refinance rates to 13-15% in 2013. The reasons: long-lasting foreign trade problems which brought about significant reduction in export foreign currency revenue, the growth of devaluation expectations, absence of sources for new foreign borrowings. In such a situation further support for the governmental policy aimed at stimulating the GDP growth by way of large-scale ruble credits might lead to catastrophic destabilisation of the financial market.
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.