The Belarusian ruble to US dollar rate will be set by Russia in 2014

In 2014 the average annual Belarusian ruble’s rate to the US dollar is expected to reach BYR 9800/ USD 1. To keep the rate within designated limits, an agreement on the planned loan of USD 2 bn from Russia will not suffice – because of the significant external debt redemption in 2014.

By strengthening national currency against a currency basket, the National Bank tries to bring back foreign currency purchased by population in the 4th quarter 2013 to the exchange market, which will allow it to tide over until the moment of first major foreign currency inflows from sales of Belarusian enterprises to Russia.

The national currency strengthened by 0.55% against a currency basket in early January.

The estimation of parameters in the forecast of the socio-economic situation in Belarus adopted on December 31, 2013, envisaged the average annual rate of national currency to the US dollar amounting to BYR 9800/ USD 1. As of January 1, 2014, the rate reached the level of BYR 9520/USD 1. Given smooth and even weakening of the Belarusian ruble, the rate should not exceed BYR 10080/USD 1. Taking into account the existing state of the current account balance of Belarus and anticipated developments in foreign markets, the retention of the rate within specified limits without considerable external and internal inflows of foreign currency seems unlikely.

In December an agreement was reached on the allocation of the state loan of USD450 mln with 10-year maturity at the 4% rate per annum by Russia. Additional resources in the amount of nearly USD1.5 bn can be allocated via state banks. On December 31, 2013, USD440 mln were provided by the Russian bank as a bridge loan for a period of six months. Taking into account the repayment of USD3.6 bn of the national debt in 2014, the announced receipts are insufficient to refinance redeemed loans to the full extent. It will not be possible to repay loans by way of foreign trade in 2014. It is expected to attract around USD800 mln from foreign markets by issuing bonds, yet the timing of placement of state foreign currency bonds is not known. Additional foreign exchange funds are necessary. Privatization may become one of their potential sources.

First potential auctions of state stocks of shares will take place in February 2014 at the earliest.

The National Bank may resort to the tactics of temporary strengthening of the ruble against a currency basket in January, which, against the backdrop of high deposit interest rates in national currency, may force a certain group of people to sell foreign currency and place the obtained resources on deposits within the banking system. These steps will allow to tide over for a short period of time (one month – one-month-and-a-half) without significant reduction in gold and forex reserves, and subsequent potential large receipts will decrease devaluation trends and will allow the National Bank to carry out foreign debt repayment while gradually weakening national currency. A potential problem is posed by excessive demands as regards investors in terms of the value of assets sold by the state, which might interfere with the plans of the National Bank. This being said, in the case of the total lack of sales of enterprises to Russia, the delivery of loans may be postponed ad infinitum, as is the case with the sixth tranche from the EurAsEc Anti-Crisis Fund.

Thus, strengthening of national currency against a currency basket in the first days of 2014 constitutes a tactical move by the National Bank, which will allow it not to reveal the drop in gold and forex reserves by the time of large receipts of foreign currency from Russia. By rationing out loans to Belarus, Russia, on the one hand, will strive for the sales of relevant assets, and, on the other, will actually tacitly manage the changes in Belarusian currency rates against the backdrop of insignificant financial reserves that the National Bank has to manage the rates.