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.
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.