National Bank risks turning off depositors by supporting real sector

April 22, 2016 18:50

The government has managed to convince the National Bank to boost lending to the economy amid gradually reducing loans’ interest rates. The population has immediately reacted to the lower deposit rates with the national currency withdrawal from deposits. Once again, the banking system might face a liquidity deficit, which could be treated either with money printing or by sharply rising loans’ interest rates.

As of May 19th, the base rate will be reduced by 1% to 21.5 % per annum.

The National Bank has implemented measures to reduce corporate loans’ interest rates. As of May 19th, the base rate will be reduced to 21.5% per annum, which is one percent below the current rate. Most banks’ interest rates on corporate loans are tied to the National Banks’ base rate. In addition, the National Bank has decided to reduce the interest rates on standing facilities liquidity support from 28% to 27% per annum. Thus, the National Bank cuts rates on the interbank lending market. According to the National Bank’s decision, the new upper limit for interest rates on corporate loans will be 39.4 % per annum.

When corporate loans’ rates reduce, the deposit interest rates also gradually reduce. The population responds to the decline in deposit interest rates by withdrawing ruble deposits from the banking system. In February 2014, the influx of term deposits was BYR 1 175.8 bln, in March it declined to BYR 850.4 bln, and in April – to BYR 364.2 bln. Given the volume of term deposits and the interest rates on loans, it can be stated there was an outflow of deposits from the banking system in April, because deposits’ capitalization is 2.5%, which is double the volume of rouble deposits’ growth. In fact, the banking system is seeing an outflow of the population’s ruble deposits, which make up a substantial part of the banks’ passive base. 

The banking system might see a repetition of the mid-2013 situation, when there was a significant outflow of deposits from the banking system amid a sharp decline in deposits’ interest rates. Low interest rates on loans led to a substantial increase in the volume lending in the economy. The National bank did not have means to support liquidity, therefore the interest rates on the inter-bank loans market went up from 21% to 60% per annum within a month.

Provided, that the National Bank is easing its monetary policy, it may launch money printing in order to support banks’ liquidity. However, such measures will result in greater pressure on the national currency. In the context of the announced, but not received loan from Russia, this may lead to further languishing gold reserves. Alternatively, interest rates on the inter-bank market may go up.

The National Bank has decided to increase the volume of lending to the economy. Excessive credit pumping may lead to a sharp increase in demand for rubles, which only the National Bank has in sufficient quantities. The interest rates on loans for the economy will further depend on the National Bank’s decisions.

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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.