June 10 – June 16, 2013

National Bank manages to maintain reserves at USD 8 billion

The situation has not changed
National Bank manages to maintain reserves at USD 8 billion

According to preliminary data, on June 1st, 2013 foreign exchange reserves were USD 8,041 million.

In May, the foreign exchange market experienced the shift from net supply to net demand for foreign currency by individuals and businesses. Until autumn, no guaranteed inflows of foreign currency are anticipated. The National Bank needs to ensure foreign currency inflow in order maintain the reserves at USD 8 billion.

In May foreign currency market situation shifted from net supply to net currency demand by individuals and businesses. The net currency demand on the domestic market was USD 138.5 million. Traditionally, during the summer period currency demand by individuals is increasing due to summer holiday season. An additional negative trend for the National Bank will be the transfer from ruble deposits to currency deposits due to lower discount (23.5% per annum) and the subsequent reduction of the ruble deposits yield for individuals. Businesses will increase pressure on the foreign exchange market due to the foreign trade situation worsening and the growing negative foreign trade in goods.

Belarus received the fifth tranche from Russia. The sixth tranche issue will be considered in the autumn. Russia’s ambassador to Belarus said that Russia will not provide funds for the modernization of Belarusian enterprises. Joint Russo-Belarusian projects, which could be funded by Russian loans, are stalled. The Finance Ministry has abandoned plans to place bonds on foreign markets for the summer period.

Potential placement of bonds on the domestic market will not be enough to meet the foreign currency demand. The only possible sources to cover the National Bank’s currency needs to service international and domestic debts would be loans from international banks to Belarusian banks.

The National Bank needs at least USD 800 million to repay the country’s public debt in the summer. The National Bank has some resources, which are not calculated in the reserves. If the foreign exchange market will manage to keep the foreign currency demand at low volumes, the National Bank will have enough financial resources to maintain the reserves at their current level without significant external borrowings. However, it is more likely that the currency demand will exceed the National Bank’s capabilities. The National Bank either has to find circa USD 300 million, or come to terms with the need to reduce the reserves from USD 8 billion, which is undesirable.

Thus, the favourable foreign currency market situation, which allowed the National Bank to buy foreign currency, is over. The National Bank needs to ensure additional foreign currency inflow in order maintain the reserves at USD 8 billion.

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