Thursday, January 8, 2015

Belarus raises rate 500 bps to slow down inflation

    The central bank of Belarus raised its benchmark refinancing rate by a sharp 500 basis points to 25.0 percent to ensure financial and macroeconomic stability by slowing down inflation and adjusted other key rates to help maintain market liquidity.
    The National Bank of the Republic of Belarus, which cut its rate by 350 basis points in 2014 and has been deeply affected by the crises in Russia, also said it would intervene in foreign exchange markets with its reserves to smooth out "drastic fluctuations" and abolished the commission on foreign exchange purchases by households to help unify the exchange rate.
    Multiple exchange rates have emerged since Belarus imposed a series of capital controls and last week the central bank cut its commission on individuals' currency purchases to 10 percent from 20 percent. The fee was initially set at 30 percent.
    In order to maintain liquidity in financial markets, the central bank will cut the rate on its standing facilities and bilateral operations to 40 percent from 50 percent as of Jan. 14 while the rate on overnight deposits would be raised to 20 percent.
   In order to reduce the negative impact on banks' liquidity from the fall in the exchange rate of the Belarusian ruble, the central bank will also will cut the reserve requirement on foreign currency deposits to 12.5 percent from 13.0 percent in January and then to 10 percent in February.
    "This measure will make it possible to support the stable functioning of banks under the conditions of the lack of ruble funds which appeared in December 2014," the central bank said.

    In addition, the central bank also resumed pegging its ruble to its foreign currency basket, with the share of Russia's ruble rising to 40 percent while the share of the euro and U.S. dollar declines to 30 percent, respectively, the bank said.
    Belarus, a former Soviet republic, has been deeply affected by the crises in Russia, its largest trading partners.
    The central bank has been devaluing the exchange rate of the ruble and set a rate of 13,760 to the dollar as of Jan. 8, a depreciation of 31 percent since the start of 2014 and 40 percent since 2012.
    Last month the president of Belarus replaced the prime minister and the chairman of the central bank and other top officials.
    The headline inflation rate in Belarus eased to 18.28 percent in November a 2014-high of 20.62 percent in August. The central bank targets inflation of 12 percent in 2015.

    The National Bank of the Republic of Belarus issued the following statement:
"The National Bank of the Republic of Belarus took a number of measures in the field of monetary policy with a view to further stabilizing the situation in the monetary sphere. 
 Taking into account the annulment of the tax for stock exchange operations involving the purchasing of foreign exchange (Resolution of the Council of Ministers of the Republic of Belarus No. 5 dated January 6, 2015), the Board of the National Bank took a decision on the abolishment of the commission charged upon purchasing of foreign exchange by households. 
This measure is aimed at unifying the purchase/sale exchange rates in different segments of the foreign exchange market, including the banks’ exchange offices, and bringing them closer to the official exchange rate of the Belarusian ruble, which, as at January 8, 2015, totaled BYR13,760 for USD1 at the trades of the Belarusian Currency and Stock Exchange. 
On January 9, 2015, the National Bank resumes the mechanism of pegging the Belarusian ruble to the foreign currency basket. At that, the share of the Russian ruble in the basket’s structure grew to 40%, with the shares of the euro and the US dollar decreasing to 30%. 
The approaches to the use of foreign exchange reserves to support the exchange rate are tightened within the new mechanism. Foreign exchange interventions will be carried out for the purpose of smoothing the drastic fluctuations of the foreign currency basket value in the volumes ensuring the positive balance of foreign exchange purchase/sale by the National Bank in the medium-term period. 
The Belarusian ruble exchange rate will fluctuate versus each currency (the US dollar, the euro, and the Russian ruble) due to the change in the basket’s value caused by the foreign exchange demand and supply at the stock exchange trades, as well as mutual changes of the cross rates of this foreign currencies. At that, the exchange rate may change in both directions. 
The implementation of the above-mentioned exchange rate setting mechanism will make it possible to manage the national currency exchange rate versus foreign currencies being of primary importance for foreign economic activities of the Republic of Belarus more effectively and increase resistance of the Belarusian economy to the impact of external factors. 
The measures of the economic, fiscal, and monetary policies will be used with a view to maintaining relative stability of the Belarusian ruble exchange rate. 
Besides, the National Bank took a number of decisions in the monetary policy area, which are designed to establish the interest rate level in the economy ensuring financial and macroeconomic stability, slowing-down of inflation, and balance of the depositors’ and borrowers’ interests. 
Thus, on January 9, 2015, the refinance rate will be increased by 5 percentage points and amount to 25% per annum. On January 14, 2015, the interest rates on standing facilities and bilateral operations designed to maintain liquidity will be decreased from 50% to 40% per annum. The rate on the overnight deposits will be raised to 20% per annum. 
At the same time, on January 9, 2015 the ceiling of interest rates on the legal persons’ deposits will be decreased from 50% to 40% per annum. The ceiling on the natural persons’ ruble deposits will be preserved at the level of 50%, but it will be also decreased as the situation further stabilizes. 
With a view to mitigating the negative impact of the drop in the exchange rate on the banks’ liquidity, the ratio of required reserves deposited with the National Bank (reserve requirements) of the attracted foreign exchange will be decreased in January 2015 from 13% to 12.5% and in February 2015 – to 10%. This measure will make it possible to support the stable functioning of banks under the conditions of the lack of ruble funds which appeared in December 2014. 
In future, the National Bank and the Government will continue to take consecutive measures designed to increase macroeconomic well-balance and strengthen stability in the financial and foreign exchange markets of the country."


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