Reduced interest rates on deposits create favourable environment for liquidity crisis in Belarus
Reduced interest rates on deposits in national currency have prompted the population to withdraw their savings from the banking system. The liquidity crisis of July-August 2013 could repeat. While waiting for financial aid from Russia, the National Bank may switch on the money printing press.
According to the National Bank’s report, in May, there was an outflow of time deposits in national currency.
In May, the population withdrew BYR 151 bln worth of deposits in the national currency from the banking system. They were prompted by reduced proceeds due to lower interest rates (below 35% per annum) and increasing uncertainty around devaluation of the Belarusian ruble. The population accounts for over 60% of the total volume of term deposits in Belarusian rubles. Partially, they could convert their roubles into hard currency.
Events in early June 2014 are reminiscent of events from summer 2013, which resulted in liquidity crisis in the banking system. Back then, reduced interest rates in the banking system led to a rapid outflow of individual and legal persons’ deposits, and lower interest rates (20-21% per annum) sharply increased demand for loans. As a result, excess liquidity in the banking system turned into liquidity deficit within a month. The National Bank supported some banks’ liquidity, mostly state-owned.
In July 2013, interest rate on interbank loans increased from 21% pa to 61% pa, which resulted in the rapid growth of rates on loans and deposits, and suspended lending - even on previously opened credit lines. To stabilise the situation, interest rates on rouble deposits had to rise to 45% per annum and remain this high for a while.
In 2014, the situation is characterised by thinner international reserves (by USD 2.6 billion) and a large volume of term deposits in Belarusian roubles (USD 600 million). In addition, in June – July, Belarus has to repay its public debt (circa USD 1 billion). The debt will be repaid from the bridge loan provided by Russia’s VTB Bank.
There are two possible ways out of this situation. First, the National Bank repeats its actions. Interest rates will grow, but the government will be unable to show the desired economic results. Second, banks’ liquidity needs are covered by money printing – until Belarus receives the loan from Russia and other loans, which will carry Belarus safely into early 2015. In 2015, Belarus anticipates to raise an additional USD 1.5 billion from export duties and reduce the current account deficit to acceptable values.
As anticipated, reduced interest rates have led to an outflow of individuals’ funds from the banking system. The National Bank might change its tactics policy if liquidity shortage occurs, but its policy’s success will depend on the timely receipt of financial assistance from Russia, on which the Belarusian leadership is really counting.
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.