Stabilization of the foreign exchange market and balanced exchange rate: not yet

Practice of supplementary trading sessions at the BCSE will continue for another month and the National Bank now expects to achieve a balanced exchange rate in the second half of November. The main causes of the currency crisis have not been resolved and without external financing a single exchange rate remains a dream.

The National Bank decided to continue with the supplementary trading session at the BCSE and envisaged the balanced exchange rate to be reached by the second half of November. For the first time since the introduction of supplementary trading sessions on the BCSE the National Bank had to intervene to support the Belarusian ruble on 6 October. On that day the USD exchange rate grew by Br 200 to Br 7810 (since 14 September the Belarusian ruble exchange rate grew by Br 1,000). The National Bank sold USD 13 million to meet the demand (supply was USD 6.5 million and demand – USD 37.56 million). Until this moment the National Bank was buying foreign currency at the supplementary sessions, filling its gold reserves. In the first two weeks of the experiment the GCR has increased by USD 103 million. On 7 October the Belarusian ruble depreciated again by Br 110 to Br 7920 per USD.

Chairman of the National Bank Ermakova said Belarus and Iran held talks about a USD 400 million loan from Iran. She also reported that Russia will provide Belarus with a USD 1 billion loan (most likely it will be secured by shares of Novopolotsk refinery, not “Belaruskali”). Moreover, the IMF mission started working in Belarus and will consider the issue of a new loan for Belarus, inter alia, in order to repay the previous loans.

Comment

The National Bank postponed the introduction of a balanced exchange rate, while it could do so as soon as tomorrow by using the administrative resources. The NBB’s decision stems from the unresolved underlying problems, i.e. the low trading volumes during the supplementary session, unbalanced supply and demand: exporters did not rush selling the currency, and importers – buying, hoping for a lower exchange rate (a priori, the balanced rate will be lower than the current).

Regardless of active state propaganda threatening with “cheaper USD tomorrow”, the population did not rush to sell the currency or to make ruble deposits at 30-40% per annum. Market imbalance became particularly obvious in the last days of the week when the National Bank had to intervene at the BCSE and the population queued up to buy dollars.

Regardless of active state propaganda threatening with “cheaper USD tomorrow”, the population did not rush to sell the currency or to make ruble deposits at 30-40% per annum.

Given the circumstances, the National Bank had no other choice than to continue with the experiment of supplementary trading sessions hoping that eventually the situation would change for the better. Imbalanced exchange rate would require significant interventions of the National Bank of Belarus in order to have a unified exchange rate, which may bring the situation on the foreign exchange market to the level of the beginning of the year (increased demand from the population and enterprises). The National Bank prefers to bid its time, prompting exporters to sell foreign currency, and importers to buy at the current exchange rate, while it waits for opportunities to replenish the treasury by new loans or by the sale of “Beltransgaz”.

In the meanwhile, the authorities continue looking for money: external creditors understand real deals only, while the population could be “fed” with promises.

Particular attention should be paid to the words of the Head of the National Bank, who virtually said that Belarus intended to build a financial pyramid by using a new IMF loan to repay the previous one.