National Bank speeds up the rate cut
On May 15th 2013, the discount rate was reduced by 2 percentage points to 25% per annum.
Using administrative means, the government managed to curb inflation at 0.5% in April 2013. The increased pace of discount rate reduction is needed to stimulate borrowing by enterprises, which face deteriorated economic situation. The reduced yields on ruble savings may result in rapid U-turn in the currency market situation and deprive the National Bank of means to preserve its reserves.
According to the National Statistics Committee data, in April 2013, inflation was 0.5%, and by April 2013, consumer prices rose by 5.9%. Detailed price indices for commodity groups show the actual arrest and even reduced prices for basic inflation-shaping positions. The inflation rate is a key indicator for the discount rate cuts. While maintaining the dynamics in the price rises, the positive rates on loan resources make about 19% per annum, which gives a certain freedom to the NBB in terms of discount rate cuts.
Potentially, the government might put some pressure on the National Bank to speed up the discount rate reduction pace. Enterprises experience a shortage of working capital for ongoing operations. Receivables and payables are growing and in order to fulfill the performance targets in terms of industrial production, enterprises produce goods to be piled at warehouses, which in turn washes away their own working capital. The banking system does not experience the lack of liquidity, but loan rates are still quite high. By lowering the discount rate, the National Bank pushes bankers to lower loans rates more rapidly in order to help the economy.
The discount rate is also constraining the foreign exchange market. In January – April 2013 the National Bank bought circa USD 900 million at the domestic currency market, which enabled it to perform all internal and external obligations and to curb the international reserves. The main factors that contributed to the net purchase of foreign currency by the National Bank were sales of foreign currency by individuals and the sale of investment foreign currency loans by enterprises to finance current operations. The population was selling currency in order to have good returns on ruble deposits. Businesses attracted foreign currency loans due to the difference between the loans rates in local and foreign currencies and via sales on the stock exchange received necessary national currency resources. Lower discount rate reduces the potential foreign currency net supply and may even result in net demand for foreign currency from individuals. After the receipt of the fifth tranche, the NBB has no other guaranteed sources to maintain international reserves at USD 8 billion.
Thus, presumably, net foreign currency supply from individuals might reduce and sales of investment currency loans on the stock exchange might reduce too. The National Bank will try to find specific ways to put pressure on banks in order to find additional external foreign currency 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.