July 4 – July 10, 2011

Progressive tightening of the monetary policy

The situation has not changed
Progressive tightening of the monetary policy

As of 13 July the refinancing rate has been increased from 18% to 20% per year. It was the sixth increase of interest rates in 2011. June inflation in Belarus was 8.6%, while during the six months of 2011 it reached 36.2%. Therefore in real terms, the rate is negative.

In Belarus in June, the tendency of the withdrawal of foreign currency deposits by the population continued: in June they fell by USD 240.2 million following a decline by USD 469.3 million in May, by USD 458.9 million in April and by USD 40.4 million in March. Therefore in March-June the population had withdrawn from their foreign currency deposits USD 1.2 billion.


The refinancing rate was raised to 20% per annum, well below the inflation rate. Fearing of the collapse of the banking system, the National Bank restricts growth of the refinancing rate thereby breaching the obligations within the credit programme of the EurAsEC and risking its continuation in 2012.

The annual inflation rate will be 50% or more, depending on the growth of energy tariffs for businesses and utility services cost for the population. Therefore the National Bank should have doubled or tripled the refinancing rate. One of the preconditions for granting subsequent tranches within the ACF of the EurAsEC is that the National Bank has to ensure that the nominal value of the refinancing rate is not less than the projected annual inflation rate. However meeting this requirement at the moment is not feasible as with such level of interest rates businesses, communities and local authorities would not be able to promptly and fully service their debt liabilities in Belarusian rubles (bank loans, corporate and municipal bonds). A sharp rise in “troubled” loans could trigger a systemic banking crisis, as banks already experience problems with the outflow of deposits and growth of debt in servicing of foreign currency loans.

The National Bank of Belarus decided to raise the rate gradually and most likely in the autumn it will be increased significantly.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.

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