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 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.