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September 23 – September 29, 2013

National Bank outlined upper limit for step-by-step devaluation

The situation has not changed
National Bank outlined upper limit for step-by-step devaluation

If the National Bank stops levelling BYR fluctuations on the Belarusian Currency and Stock Exchange, the BYR/USD exchange rate might exceed BYR 11000 per USD.

The National Bank has no resources to maintain the national currency’s exchange rate without turning to the gold reserves. The need for a weaker BYR is growing, and the relief of devaluation expectations with high interest rates is not a panaceum. The National Bank (NB) reckons it can reduce devaluation expectations at the cost of international borrowing. If unsuccessful, the NB will devalue the BYR gradually from BYR 9000 / USD 1 to BYR 11000/ USD 1.

During a ‘hot line’ with National Bank Head Yermakova, expectations of devaluation could be sensed through a number of questions that concerned BYR exchange rate. In recent months, the demand for foreign currency has outstripped supply. In H1 2013, the main foreign currency sellers at the forex were businesses (total sales USD 703.8 million). One of the main foreign currency suppliers in the country is Belaruskali, which faces financial difficulties, and holds talks about refinancing payments under the loan granted by Russia’s Sberbank. In September and October the situation will deteriorate due to maintenance works at the Mozyr Refinery. The Finance Ministry’s plans to raise foreign currency on the domestic market will not significantly improve the situation as the demand for currency is increasing in all market segments.

Industries have already addressed the government with a request to weaken the BYR in order to boost exports. A one-time depreciation is not considered due to numerous negative effects, and the government stakes on a gradual depreciation of the national currency. High interest rates have been placed on national currency deposits (up to 45% per annum). This creates a ‘financial pyramid’, which can only exist for a relatively short period of time due to the rapid growth of payments on deposits. The growth of interest rates ramps up the pressure on the foreign exchange market and the demand for foreign currency increases the pace of gradual devaluation, which, in turn, accelerates interest rates on the deposit market.

The National Bank sees a solution in attracting foreign and domestic loans. It hopes that the sixth tranche of the EurAsEC Anti-Crisis Fund (USD 440 million) will be allocated in time and the Sino-Belarusian negotiations will be successful, securing USD 500 million and Yuan 5 billion untied loans. If these hopes fail to materialize, the National Bank will be forced to devalue the national currency down to the level of BYR 11 000/USD 1.

Thus, individuals and businesses should closely monitor international reserve levels, as well as the results of negotiations about international loans.

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