Wednesday, November 11, 2020

Belarus maintains rate as inflation rise seen temporary

      The central bank of Belarus, where peaceful protesters continue to be arrested during weekend demonstrations over the presidential election three months ago, left its benchmark interest rate steady, saying the rise in inflation is temporary and mainly due to a depreciation of the Belarusian ruble.
     The National Bank of the Republic of Belarus (NBRB) kept its refinancing rate at 7.75 percent, unchanged since June when it was lowered after a request by the country's president, Alexander Lukashenko, who has ruled the country since 1994.
     The central bank has cut its refi 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.
    Inflation in Belarus accelerated for the third month to 6.2 percent in October, with NBRB saying this was mainly due to a depreciation of the local ruble against foreign currencies in August, and mainly reflected in the prices of imported non-food items.
     "The weakening of the Belarusian ruble resulted from the increased demand for foreign currency in the domestic foreign exchange market," the bank's chairman, Pavel Kallaur, said in a statement, adding this was linked to increased negative expectations about the prospects for further economic growth along with an outflow of ruble and foreign currency savings from banks.
     Kallaur said the factors behind the rise in inflation would wane and by the end of the year inflation should be around 6 percent and then approach the bank's target of 5.0 percent by the end of 2021, helped by the prevalence of long-term disinflationary factors, including weak foreign demand.
     The Belarusian ruble has been hit hard twice this year, first in March as COVID-19 began to spread worldwide, and then in August following the Aug. 9 presidential election that Lukashenko said he won with 80 percent of the vote.
     But opponents of Lukashenko say they won the election and tens of thousands of Belarusians have continued to protest every weekend since then. On Sunday Nov. 8 observers say police detained more than a thousand peaceful protesters in the capital of Minsk.
     The European Union on Oct. 2 imposed sanctions - such as a travel ban and an asset freeze - on Belarusian officials seen as responsible for "repression and intimidation" against peaceful demonstrators, opposition members and journalists and for "misconduct" of the electoral process.
     On Nov. 6 the European Council added another 15 members to its list of sanctions, including President Lukashenko, his son and the national security adviser.
     The Belarusian ruble has firmed this month and was trading at 2.56 to the U.S. dollar today, down 18 percent this year.
     "Currently, the situation in the financial market is stabilizing," Kallaur said, adding the outflow of funds from the banking system slowed in September and October, helping stabilize the exchange rate.
     In January the central bank and government adopted a strategy to improve trust in the Belarusian ruble, which was only introduced in July 2016, and reduce the reliance on foreign currencies in domestic transactions. The strategy includes a full transitioning to inflation targeting by 2021.
     Belarus' gross domestic product shrank an annual 0.2 percent in the first quarter of this year, down from growth of 1.6 percent in the previous quarter.



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