US Dollar’s new highs is a consequence of the “solvent” schemes’ suspension

The Belarusian ruble’s firming in 2012 was due to the excess supply of foreign currency against the corporate clients’ demand, enabling the National Bank to meet foreign obligations and to replenish the reserves. To maintain gold reserves at a safe level, the National Bank is likely to choose the tactics of smooth depreciation of USD with small interventions to control the potential excessive demand.

The US Dollar exchange rate against the Belarusian ruble this week was BYR 8450 per one USD, which is the highest since January 14^th, 2012.

Since early September, the Belarusian ruble depreciated against all three currencies included in the currency basket. Only by the end of this week the demand for USD at the Belarusian Currency and Stock Exchange (BCSE), was lower than supply: for the first time during the past 10 trading sessions. Similar trend is observed with regard to other currencies (EUR, RUR), which results in increased foreign exchange rates.

There are two reasons behind this. 1. The deterioration of the foreign trade state of affairs. The ‘solvents’ scheme suspension could not go unnoticed for the foreign trade, which is reflected in the preliminary data for July 2012, and for the situation at the BCSE, which resulted in a significant reduction in the currency supply, compared with the decreased demand.

2. Fulfilling internal and external obligations. Foreign debt, with repayment starting in September, is relatively small (about USD 45 million). But a one billion loan is claimed for an early repayment in September. There were proposals to restructure the debt, but there was no public announcement about any decision in this regard. Moreover, there is a chance that swaps between the National Bank and commercial banks will be repaid, as well as other liabilities.

Population’s income growth resulted in the population becoming a net currency buyer, rather than seller, which blocked this channel of hard currency revenues for the National Bank.

To improve the situation in foreign trade is a challenge, in particular bearing in mind the current problems with potash fertilizers, one of the main Belarusian exports. Failure to ensure faster growth in labor productivity relative to wage growth creates additional pressure on the exchange rate. To maintain gold reserves at a safe level, the National Bank is likely to choose the tactics smooth depreciation of USD with small interventions to control the potential excessive demand.