Cheap loans only for select few businesses and industries

The high inflation rate projected for 2014 will prevent the National Bank from lowering the discount rate to 14-16% per annum. Unaffordable corporate loans imply that the enterprises will be unable to implement the 2014 production plans. The National Bank will provide cheap loans only to those enrolled in the state support programmes, others will have no access to cheap loans.

As of April 16^th, the discount rate will be reduced to 22.5 % per annum.

In Q1 2014, consumer prices in Belarus rose by 4.9%, which means that the 2014 inflation forecast at 11 % is likely to be reviewed. The 2014 inflation forecast at 16-17% would be more realistic. In order to preserve positive interest rates in the economy, the discount rate should be higher than inflation. This implies that the discount rate in 2014 will not be reduced to 14-16 % on average.

The National Bank has reduced the discount rate by 1% as a matter of concession to the Government, which demands cheaper loans to the economy. Expensive corporate loans constrain production, which, in turn, results in falling imports and contained domestic demand. As a result, the international trade situation improves, while foreign currency net purchases on the domestic market reduce in all economic sectors.

Reduced production volumes will result in failed GDP forecasts, but, given the recession in Russia, this index is no longer a priority,. Maintaining the international reserves’ volume has moved to the top of the agenda (in Q1 2014 international reserves fell by more than USD 900 million, reaching a critical mark – 1 month worth of goods and services imports). If international reserves continue to fall, the currency market may start to panic.

A lower discount rate will have the outmost impact on the enterprises enrolled in the state programmes. In 2014, BYR 40 trillion was allocated for the state programmes, BYR 24 trillion of which will be spent on supporting agro-industrial complex. Loans issued within the state programmes are tied to the discount rate and bear benefits by partially reimbursing interest rates. For the remaining enterprises, loans will not become considerably cheaper, because the banks will preserve high deposit rates for the population to ensure cash inflow in the banking system. Therefore, throughout 2014, corporate loans will be largely unaffordable for most enterprises.

Thus, Belarusian economy is gradually creating different economic conditions for various enterprises. The state will provide assistance to state-owned enterprises by increasing the burden on the private sector.