Bal­anced Ap­proach, Ac­cu­rate Mea­sures

The National Bank will en­gage the full range of mone­tary pol­icy in­stru­ments to sta­bi­lize the ex­change rate and re­duce the in­fla­tion

Economy of Belarus - - CONTENTS - Ta­tiana VLASOVETS, Econ­omy of Be­larus Mag­a­zine

The National Bank will en­gage the full range of mone­tary pol­icy in­stru­ments to sta­bi­lize the ex­change rate and re­duce the in­fla­tion

At a meet­ing on so­cio-eco­nomic de­vel­op­ment of the coun­try, Alexan­der Lukashenko said that the Be­laru­sian ru­ble ex­change rate will be de­ter­mined by sup­ply and de­mand and will not be main­tained ar­ti­fi­cially. How does the National Bank of Be­larus mon­i­tor the sit­u­a­tion on the for­eign ex­change mar­ket now that the ex­change rate is free float­ing? What are the main pri­or­i­ties of the National Bank in the ex­change rate pol­icy?

As you know, on 14 Septem­ber this year the Be­laru­sian Currency

The global eco­nomic cri­sis has be­come a se­ri­ous chal­lenge for the fi­nan­cial sys­tems of many coun­tries. Be­larus, which demon­strated a sta­ble eco­nomic growth both in the dif­fi­cult year of 2009 and in the post-cri­sis year of 2010, en­coun­tered cer­tain dif­fi­cul­ties in the for­eign ex­change mar­ket in the spring of this year. They were caused pri­mar­ily by ex­ter­nal fac­tors and ob­jec­tive re­al­i­ties, among which were ris­ing en­ergy prices and volatil­ity of global fi­nan­cial mar­kets. The Be­laru­sian Govern­ment and the National Bank de­signed and im­ple­mented mea­sures to ad­dress the cur­rent eco­nomic and fi­nan­cial prob­lems. In an in­ter­view to the Econ­omy of Be­larus Mag­a­zine Chair­per­son of the National Bank of Be­larus Nadezhda Yer­makova talks about the ex­change rate and the mone­tary pol­icy, mea­sures to main­tain the pur­chas­ing power of sav­ings in banks and a pos­si­ble new co­op­er­a­tion pro­gram be­tween Be­larus and the IMF.

and Stock Ex­change (BSCE) be­gan hold­ing additional trad­ing ses­sions to sell/pur­chase for­eign currency at the rate which is shaped by sup­ply and de­mand. In other words, pur­chase/sell op­er­a­tions are based solely on the mar­ket terms.

Of course, the National Bank has all the nec­es­sary tech­ni­cal means to mon­i­tor the ex­change rate on the additional trad­ing ses­sion in re­al­time. The National Bank of Be­larus, as well as a num­ber of cen­tral banks of other states, has the right to pur­chase and sell for­eign currency on the mar­ket. There­fore, if nec­es­sary, we will carry out for­eign ex­change in­ter­ven­tions to smooth out some spec­u­la­tive fluc­tu­a­tions in the course of additional ses­sions. We do have such an op­por­tu­nity con­sid­er­ing the ac­cu­mu­lated amount of gold and for­eign ex­change re­serves.

In ad­di­tion, we will con­tinue the pro-ac­tive in­ter­est rate pol­icy and tough emis­sion pol­icy, which are known to sig­nif­i­cantly in­flu­ence all seg­ments of the for­eign ex­change mar­ket, in­clud­ing stock ex­change trad­ing.

The main ob­jec­tive of the National Bank is not just to achieve the sin­gle ex­change rate in all seg­ments of the for­eign ex­change mar­ket, but to en­sure its rel­a­tive sta­bil­ity in the long term. There­fore, a pri­or­ity for the Govern­ment and the National Bank is to achieve a medium-term eco­nomic bal­ance, re­dress the macroe­co­nomic im­bal­ances and struc­tural vul­ner­a­bil­ity, and set the tone for sus­tain­able eco­nomic de­vel­op­ment.

To achieve these goals, namely to sta­bi­lize the ex­change rate and re­duce in­fla­tion, the National Bank uses the full range of mone­tary pol­icy in­stru­ments.

How long will it take to sta­bi­lize the ex­change rate and reach the equi­lib­rium?

The National Bank be­lieves this process can take from one and a half to two months.

I would like to re­mind the read­ers that dur­ing the first additional trad­ing ses­sion at the Be­laru­sian Currency and Stock Ex­change on 14 Septem­ber the U.S. dol­lar was trad­ing at Br8,600 while the of­fi­cial ex­change rate was Br5,347. The gap be­tween the of­fi­cial and mar­ket ex­change rates was pretty sub­stan­tial.

Now the strate­gic goal of the National Bank is to con­verge these two rates at the point match­ing its equi­lib­rium value in the cur­rent eco­nomic con­di­tions.

Of course, we would like to pass this way as fast as pos­si­ble. But we do not in­tend to ar­ti­fi­cially speed up this process.

At the meet­ing the Pres­i­dent warned against un­founded is­sue of national currency. How does the National Bank in­tend to tighten the mone­tary pol­icy? What mea­sures will be taken to curb the money sup­ply?

The National Bank will limit the is­sue of money, “ap­pre­ci­ate” the Be­laru­sian ru­ble-de­nom­i­nated loans and make the ru­ble more at­trac­tive as a means of sav­ings.

We will in­crease the in­ter­est rates in the econ­omy by grad­u­ally rais­ing the re­fi­nanc­ing rate and the rates on in­stru­ments of the National Bank. Since the be­gin­ning of the year the National Bank in­creased the re­fi­nanc­ing rate nine times from 10.5% to 30% per an­num.

Si­mul­ta­ne­ously we in­creased the rates on the in­stru­ments of the National Bank: on overnight loans and overnight swap trans­ac­tions - from 16% to 40% per an­num, on overnight de­posits - from 7% to 20% per an­num.

Steps are be­ing taken to curb money sup­ply growth.

On 1 June 2011 Be­larus stopped emis­sion sup­port for pub­lic pro­grams.

The terms have been tight­ened for re­fi­nanc­ing of banks. Cur­rently, re­fi­nanc­ing of banks is car­ried out only through stan­dard liq­uid­ity fa­cil­i­ties on the mar­ket terms and for short pe­ri­ods of time.

The National Bank has re­duced to 7 days the time of bank re­fi­nanc­ing through bi­lat­eral trans­ac­tions and open mar­ket op­er­a­tions. Pre­vi­ously, the max­i­mum pe­riod of these op­er­a­tions was 30 days and 3 months re­spec­tively. In ad­di­tion, the National Bank sus­pended se­cured loans to banks. Ear­lier they were pro­vided for up to six months.

In the fu­ture, the re­fi­nanc­ing pol­icy of the National Bank will fo­cus on the reg­u­la­tion of the cur­rent liq­uid­ity on the mar­ket terms in ac­cor­dance with the mone­tary pol­icy pri­or­i­ties. Eco­nomic pro­grams will now be de­pen­dent on the avail­abil­ity of fund­ing sources.

In H1 2011 there was some cap­i­tal flight from banks. The amount of money in the hands of peo­ple is es­ti­mated at more than $7 bil­lion. How are things now with ru­ble and for­eign currency de­posits? What steps are be­ing taken to cre­ate more at­trac­tive terms to lure more de­posits?

The pro­cesses hap­pen­ing this year in the Be­laru­sian econ­omy in gen­eral and in the do­mes­tic currency mar­ket in par­tic­u­lar have in­flu­enced Be­laru­sian de­pos­i­tors.

I would like to give you sev­eral fig­ures.

Since the be­gin­ning of this year, house­hold de­posits in national currency in­creased by Br1.168 tril­lion, or 11.9%. As of 15 Septem­ber, their vol­ume amounted to Br10.98 tril­lion.

In Au­gust this year de­posits shrank by Br502.5 bil­lion, or 4.6%. In 14 days of Septem­ber de­posits in national currency in­creased by Br520 bil­lion, or 5%. This in­crease was due to the growth of trans­fer­able de­posits – by Br477.6 bil­lion (14%) and fixed de­posits – by Br42.3 bil­lion (0.6%).

Things are more com­pli­cated with de­posits in for­eign currency. This is es­pe­cially true for fixed de­posits. Since the be­gin­ning of the year their vol­ume (in U.S. dol­lars) fell by $906.4 mil­lion, or 21.8%,

in­clud­ing in Au­gust by $16.2 mil­lion, or 0.5%.

This trend per­sisted in the first half of Septem­ber: in four­teen days fixed de­posits in for­eign currency de­creased by $101.2 mil­lion, or 3%.

I do not want to get far ahead, but I think that by the year-end we will man­age to re­verse the sit­u­a­tion, in­clud­ing through a set of mea­sures de­signed by the Govern­ment and the National Bank to sta­bi­lize the sit­u­a­tion in the do­mes­tic mar­ket.

Be­laru­sian banks, in turn, are rais­ing in­ter­est rates on new de­posits in Be­laru­sian rubles and for­eign currency, and on the pre­vi­ously bor­rowed de­posits.

Be­laru­sian banks of­fer an av­er­age of 39% per an­num, and some banks even 45% on the new fixed de­posits in national currency.

Banks of­fer an av­er­age of 7-9% per an­num, or even 11% on fixed de­posits in for­eign currency.

To pre­vent the out­flow of money, this year banks have in­tro­duced short-term de­posits (15 – 65 days) with the same in­ter­est rates as for “longer” de­posits.

In or­der to lure more de­posits, in­clud­ing long-term ones, banks in­tro­duced de­posit prod­ucts with additional in­come in the form of bonuses, awards, prizes, de­pend­ing on the ac­tual term of the de­posit.

In short, the main­te­nance of the pur­chas­ing power of sav­ings en­trusted to banks by in­di­vid­u­als gets in­creased at­ten­tion in the cur­rent eco­nomic environment. And this pol­icy will be un­doubt­edly con­tin­ued.

You men­tioned that this year the National Bank has been steadily rais­ing the re­fi­nanc­ing rate. Will it be in­creased fur­ther?

When con­sid­er­ing a fur­ther in­crease in the rate of re­fi­nanc­ing, the National Bank will ad­here to a bal­anced ap­proach, tak­ing into ac­count both the in­ter­ests of de­pos­i­tors and bor­row­ers. On the one hand, a grad­ual in­crease in the re­fi­nanc­ing rate in­creases the yield on de­posits in Be­laru­sian rubles, strength­ens their pro­tec­tion against in­fla­tion, and, on the other hand, gives time to credit bor­row­ers to adapt to new eco­nomic con­di­tions. In ad­di­tion, such an ap­proach would pre­vent a sharp rise in NPLS in the bank­ing sec­tor.

The tight­en­ing of the mone­tary pol­icy, in­clud­ing the grad­ual in­crease in the re­fi­nanc­ing rate, is likely to be con­tin­ued. The rate will largely de­pend on the eco­nomic sit­u­a­tion in the coun­try, the in­ten­sity of in­fla­tion, and the

ef­fec­tive­ness of other mone­tary and gen­eral eco­nomic mea­sures.

In ac­cor­dance with the mone­tary pol­icy guide­lines of Be­larus for 2011 the coun­try’s in­ter­na­tional re­serve as­sets were pro­jected to in­crease by at least $1.2 bil­lion. What is the amount of gold and for­eign currency re­serves now? Is the cur­rent amount suf­fi­cient to meet the pri­or­i­ties of the mone­tary pol­icy?

As of 1 Septem­ber 2011, the gold and for­eign currency re­serves of the Repub­lic of Be­larus cal­cu­lated us­ing the IMF SDDS were $4.6 bil­lion. If cal­cu­lated us­ing national terms the re­serves were $6.2 bil­lion in equiv­a­lent.

I would like to note that in March this year, it was de­cided to dis­con­tinue in­ter­ven­tions in or­der to save the re­serves for ful­fill­ing the obli­ga­tions of the National Bank and the Govern­ment be­fore the coun­ter­par­ties. This mea­sure along with the ad­just­ments to the macroe­co­nomic pol­icy al­lowed us not only to stop the de­cline in the re­serves but also to in­crease their vol­ume.

So, in April this year, the amount of the gold and for­eign currency re­serves cal­cu­lated us­ing the IMF stan­dards in­creased by $819.5 mil­lion, us­ing national terms by $925.1 mil­lion.

Fur­ther in­crease in for­eign re­serves to a level en­vis­aged in the mone­tary pol­icy guide­lines of Be­larus for 2011 will largely de­pend on how ef­fec­tively we work to im­prove the bal­ance of for­eign trade and the bal­ance of pay­ments of the coun­try.

We will be work­ing hard to meet the tar­get re­gard­ing for­eign di­rect in­vest­ment on a net ba­sis. Meet­ing this tar­get will not only sig­nif­i­cantly im­prove the se­cu­rity of the Be­laru­sian econ­omy against all kinds of ex­ter­nal threats but will cer­tainly con­trib­ute to suc­cess­ful im­ple­men­ta­tion of the mone­tary pol­icy.

Mea­sures to lib­er­al­ize the for­eign ex­change mar­ket and the tight­en­ing of the mone­tary pol­icy co­in­cide with the main rec­om­men­da­tions of the In­ter­na­tional Mone­tary Fund and prob­a­bly in­crease our chances of ob­tain­ing an IMF loan. As is known Be­larus has be­gun ne­go­ti­a­tions with the IMF on a new pro­gram of co­op­er­a­tion and the loan. When do you plan to con­tinue this work? Is there a need to in­volve the IMF loan?

In­deed, at the end of May this year the Govern­ment and the National Bank ap­plied to the In­ter­na­tional Mone­tary Fund for the loan. We ex­pect that fur­ther ne­go­ti­a­tions on the new loan will com­mence in late Oc­to­ber.

At the mo­ment we are talk­ing about a loan in the amount of $5 to $8 bil­lion. But per­haps we will not need that much. This will de­pend on the eco­nomic sit­u­a­tion in our coun­try.

It should be noted that ex­perts from the In­ter­na­tional Mone­tary Fund have ap­proved the mea­sures taken by the Govern­ment and the National Bank to sta­bi­lize the sit­u­a­tion in the do­mes­tic mar­ket and achieve the sin­gle ex­change rate of Be­laru­sian ru­ble as well as the struc­tural re­forms that we have been im­ple­ment­ing to bal­ance out the econ­omy and make it more ef­fi­cient.

I would like to note that as part of the com­mit­ments the Repub­lic of Be­larus has un­der­taken be­fore the An­ti­cri­sis Fund of the Eurasian Eco­nomic Com­mu­nity, we are al­ready im­ple­ment­ing a pack­age of struc­tural re­forms. These re­forms are es­sen­tially iden­ti­cal to the rec­om­men­da­tions of the In­ter­na­tional Mone­tary Fund.

The Be­laru­sian Currency and Stock Ex­change holds an additional trad­ing ses­sion on a daily ba­sis

Since the be­gin­ning of the year house­hold bank de­posits in

lo­cal currency have in­creased by

Br1.168 tril­lion

In national terms Be­larus’ gold and for­eign ex­change re­serves made up $4.2 bil­lion in the equiv­a­lent as of 1 Septem­ber 2011

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