National Bank outlined upper limit for step-by-step devaluation
If the National Bank stops levelling BYR fluctuations on the Belarusian Currency and Stock Exchange, the BYR/USD exchange rate might exceed BYR 11000 per USD.
The National Bank has no resources to maintain the national currency’s exchange rate without turning to the gold reserves. The need for a weaker BYR is growing, and the relief of devaluation expectations with high interest rates is not a panaceum. The National Bank (NB) reckons it can reduce devaluation expectations at the cost of international borrowing. If unsuccessful, the NB will devalue the BYR gradually from BYR 9000 / USD 1 to BYR 11000/ USD 1.
During a ‘hot line’ with National Bank Head Yermakova, expectations of devaluation could be sensed through a number of questions that concerned BYR exchange rate. In recent months, the demand for foreign currency has outstripped supply. In H1 2013, the main foreign currency sellers at the forex were businesses (total sales USD 703.8 million). One of the main foreign currency suppliers in the country is Belaruskali, which faces financial difficulties, and holds talks about refinancing payments under the loan granted by Russia’s Sberbank. In September and October the situation will deteriorate due to maintenance works at the Mozyr Refinery. The Finance Ministry’s plans to raise foreign currency on the domestic market will not significantly improve the situation as the demand for currency is increasing in all market segments.
Industries have already addressed the government with a request to weaken the BYR in order to boost exports. A one-time depreciation is not considered due to numerous negative effects, and the government stakes on a gradual depreciation of the national currency. High interest rates have been placed on national currency deposits (up to 45% per annum). This creates a ‘financial pyramid’, which can only exist for a relatively short period of time due to the rapid growth of payments on deposits. The growth of interest rates ramps up the pressure on the foreign exchange market and the demand for foreign currency increases the pace of gradual devaluation, which, in turn, accelerates interest rates on the deposit market.
The National Bank sees a solution in attracting foreign and domestic loans. It hopes that the sixth tranche of the EurAsEC Anti-Crisis Fund (USD 440 million) will be allocated in time and the Sino-Belarusian negotiations will be successful, securing USD 500 million and Yuan 5 billion untied loans. If these hopes fail to materialize, the National Bank will be forced to devalue the national currency down to the level of BYR 11 000/USD 1.
Thus, individuals and businesses should closely monitor international reserve levels, as well as the results of negotiations about international loans.
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.