National Bank holds on to national currency deposits
The National Bank Chairman reported ruble deposits and certificates of the largest Belarusian banks stating growth of up to 35% per annum.
The National Bank rapidly responded to the outflow of ruble deposits. It has adopted decisions that have already resulted in a substantial increase in interest rates on deposits in national currency. These measures aim at suspending the outflow of ruble deposits from the banking system, but will virtually suspend lending in the real economy sector.
On July 12th, data on money supply was published. For the first time in 2013, in late June, the amount of term ruble deposits in the banking system decreased relative to the values in early June. Term ruble deposits reduced to BYR 71.9 billion. In the first ten days of July, the population withdrew over BYR 1 trillion deposits from the banking system. This has resulted in a significant reduction of excess liquidity in the banking system. Rates in the interbank market increased from 21.7% pa in early July to 26.8% pa, as of July 11th, 2013.
In this situation, the National Bank took rapid action to prevent the outflow of the population’s resources from the banking system. It was decided to raise the reserve requirements on foreign currency funds by two percentage points (from 12% to 14%). This provision will mean that required reserves will need to be additionally replenished. In addition, this will reduce the ruble liquidity in the banking system by more than 1 trillion BYR. As a consequence, the interest rates of currency and ruble deposits will increase and loan interest rates will reduce. On July 12th, two banks, Belarusbank and Belagroprombank, advertized term ruble deposits (1-2 months) at 31-35% per annum.
This measure aimed to bring ruble deposits back into the banking system. Growth in ruble deposits was stimulated by high rates. The growth in rates is supposed to increase the yield on deposits, to reach the early 2013 level. Otherwise a deficit in ruble liquidity will occur in the banking system, which will result in higher interest rates, and lower lending in the real economy. The population, in turn, receives a short-term opportunity to have high proceeds from term ruble deposits. The National Bank believes that this will outweigh the population’s expectations of devaluation.
This means that opportunities for low-cost business loans during the next 2-3 months will be closed, repeating the 2012 situation on a smaller scale. The population is still highly sensitive to devaluation after the 2011 crisis, and, at the slightest threat, will react by rapidly by withdrawing rubles and placing their savings more in secure currency deposits.
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.