National Bank risks turning off depositors by supporting real sector

Category status:
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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Belarusian and Ukrainian Defence Ministries entangle in confrontation spiral
October 02, 2017 11:57
Фото: RFRM

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.

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