12 Aug

Belarus holds rate as FX market prevents further easing

August 12, 2020

By CentralBankNews.info

The central bank of Belarus left its benchmark interest rate steady but said continued moderate easing of its policy stance was called for by lower-than-expected inflation but the current situation in the foreign exchange markets with heightened devaluation expectations did not allow for such a move today.

     “To maintain financial stability, it is important to maintain the propensity to save in local currency,” Pavel Kallaur, chairman of the National Bank of the Republic of Belarus (NBRB) said in a statement, adding there was a risk of increased volatility in the global commodity and financial markets that could lead to higher price fluctuations for imported goods.
     In addition to leaving its refinancing rate at 7.75 percent, the bank’s board decided to hold an additional monetary policy meeting on Oct. 14, ahead of the previously scheduled meeting on Nov. 11.
     NBRB last cut its key interest at an extraordinary board meeting on June 22 after the country’s president, Alexander Lukashenko, asked the bank to look into lowering the rate.
     NBRB has cut its rate three times this year by a total of 125 basis points and 19 times since April 2016 by a total of 17.25 percentage points.
     Today’s policy decision comes after Lukashenko, who has ruled Belarus since 1994, was re-elected on Sunday in a disputed election that triggered the largest protests in a decade.
     Today, Reuters reported police had fired live rounds at protesters in the city of Brest and arrested more than 1,000 people nationwide, intensifying a crackdown that has prompted the European Union to weigh new sanctions on the country after lifting them in 2016.
     The Belarus ruble weakened this week and hit 2.48 to the U.S. dollar earlier today, down 1.6 percent since the start of August, but firmed following the central bank’s decision to trade at 2.46, still down 14.6 percent since the start of the year.
     The people are accumulating their savings “in an unorganized form” and in foreign currency, with bank deposits down, Kallaur said, adding they are increasingly net buyers of foreign currency, indicating a surge in devaluation expectations.
     However, he considered this a temporary situation.
     Headline inflation in Belarus was steady at 5.2 percent in July and June, below the bank’s forecast from May, and is forecast to be in a range of 5.0 to 5.3 percent until the end of the year.
     Economic activity declined in the second quarter due to lower external demand and trade, a deterioration in companies’ financial conditions and domestic demand, Kallaur said.
     Belarus’ gross domestic product contracted by 0.3 percent in the first quarter from the same quarter last year.
      In January the central bank and government adopted a major strategy to improve trust in the Belarusian ruble, which was introduced in July 2016, and reduce reliance of foreign currency in domestic transactions.
     Some 97 percent of the government’s debt is denominated in foreign currency and the strategy includes a full transition to inflation targeting by 2021.

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