National Bank triggers deposit outflow from banks

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April 22, 2016 18:42

On December 1 2013, the population lowered volumes of term foreign currency deposits in the banking system for the first time this year. The National Bank has taken relatively risky measures to reduce BYR deposit rates in the banking system. Such actions can result in a very quick response from the public who may withdraw both BYR and foreign currency deposits, also in light of the apparent lack of income of foreign loans and cause problems on the foreign exchange market.

In November, the population split into two groups regarding savings. The first group kept its savings in ruble deposits at 50-55% per annum. The second group converted rubles into foreign currency and kept its savings at home. The second group bought $156.4m net, and did not make any deposits in the banking system.

In December, the National Bank implemented some measures which might have a significant impact on the banking system and people’s savings. The NB put restrictions on corporate and private foreign currency loans. Meanwhile, interest rates on private ruble deposits were reduced to 45% per annum. Restrictions on consumer loans were also introduced.

These measures might lead to mass outflow of cash from the banks. Simultaneously, the demand for foreign currency might increase considerably. In addition, in December 2013 Belarus has to repay circa $1bln in foreign and domestic debt. Therefore, by the year-end the National Bank might be on the precipice of seeing its gold reserves reduce dramatically..

Thus, the National Bank’s actions aiming at regulating interest rates in banking are rather risky. If people’s reaction to reduced saving proceeds slips out of control, the National Bank might introduce restrictions on foreign currency purchases on the domestic market.

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