National Bank is ready to take any measures to obtain foreign currency
Interest rates on the interbank market reached 78.7 % per annum.
Record high interest rates on the interbank market is the natural result of the National Bank’s measures aimed at forcing the banks to sell available foreign currency. The National Bank wants the national reserves to stop falling. As a result, the economy might experience financial paralysis, but industrial financial performance is not the National Bank’s responsibility.
On September 12th, interest rates on the interbank market reached a record high of 78.7% per annum. Even during devaluation in 2011, the interest rate was not this high. Various actions by the National Bank (NB) have led to this phenomenon. For instance, the National Bank increased the requirements for the allotments to the reserve funds, which resulted in additional demand for ruble liquidity. Unofficial restrictions on deposit interest rates for individuals - not more than 35% - introduced in August, against consistent weakening of the national currency, resulted in an outflow of national currency from ruble deposits in September and in a dramatic need for additional ruble liquidity by banks. The National Bank increased the interest rates to support liquidity, but as the support was limited, it provoked higher interest rates on the interbank market. The National Bank’s ultimate goal was to force banks to sell available foreign currency, which it then bought itself.
Banks are faced with a dilemma. Failure to comply with NB requirements regarding contributions to the compulsory reserve fund, results in penalties – up to twice the size of the discount rate – and all the transfer of outstanding requirements to the next period. But in this case, banks do not sell the currency. Alternatively, banks can sell the currency and fulfill the requirements without paying a fine. However, if the national currency sharply fluctuates, foreign currency risks will increase. As the banks are incapable of gaining such an amount of foreign currency in the short-term, they were unofficially allowed to increase the interest rates on deposits up to 42% per annum. The banks believe that people’s mercantile interests prevail over devaluation expectations. The opportunity to make quick money may encourage depositors to convert their foreign currency savings into national currency deposits in Belarus’ banking system.
The National Bank’s measures might have far-reaching economic consequences. Costly deposits lead to higher loan interest rates - up to prohibitive levels. Some banks have already announced the discontinuation of business loans. Given the large volume of payables and receivables, this can result in payment paralysis in the economy. Real estate lending programmes for individuals have been suspended. One consequence of the 2011 devaluation was many uncompleted construction projects were suspended due to the revision of construction costs and belated crediting. The new suspension of lending will result in a new ‘wave’ of uncompleted construction projects. However, the National Bank is more concerned about the size of gold reserves, hoping to replenish them in the near future. The NB is not really concerned about the situation in industry, which operates at minimal profitability and hugely relies on loans to pay for the delivery of goods and workers’ wages.
The National Bank attempts to refinance foreign currency payments, but this is becoming more costly and threatens unpleasant consequences for the economy. One solution would be to sell off assets, but this issue is beyond the National Bank’s scope of responsibility.
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.