National Bank ignores Belarus’ economy losses from Russian rouble devaluation

Due to the economic slowdown in Russia, international sanctions, and low oil prices, the Russian rouble has devalued by more than 25% since early 2014. Belarusian exporters’ losses could reach into several hundreds of millions US dollars. However, the National Bank underestimates the threats to the Belarusian economy, and intends to preserve its currency policy in order to maintain stability on the foreign exchange market.

The Russian rouble exchange rate against the US Dollar has changed from RUR 32.66 per USD 1 on January 1^st, 2014 to RUR 41.05 per USD 1 on October 18^th, 2014. The Russian ruble’s devaluation by 25.5% was caused by economic slowdown in Russia, a significant outflow of capital from the country, and international sanctions which have led to problems with borrowing in the Russian banking sector amid the growing need to refinance a significant amount of external corporate debt. The situation has exacerbated due to a significant drop in oil prices, one of Russia’s main sources of currency.

Russia is Belarus’ main trading partner in foreign trade. In January – August 2014, Russia’s share in Belarusian exports was around one third – USD 10.8 billion of a total USD 29.3 billion. As of August 1^st, Russian counterparties’ payables were approximately USD 2.4 billion. By weakening the rouble, Russia could reduce the debt to USD 2.1 billion. Producers of foodstuffs, petroleum products and engineering goods suffer major losses.

The National Bank’s currency policy envisages that the Belarusian rouble will weaken against the US Dollar without taking into account other currencies. In the context of the Russian rouble devaluation, the National Bank has two main policy options on the foreign exchange market. The first option is to weaken the Belarusian rouble against the US Dollar in order to support domestic exporters. Such a policy might result in problems on the domestic currency and deposit markets (which lies in the National Bank’s sphere of responsibility). The second option is to preserve the existing exchange rate policy. In this case, the population would maintain a high confidence in savings in Belarusian roubles and would continue to be the net seller of foreign currency on the domestic foreign exchange market. However, such a policy would inevitably lead to a decline in foreign exchange proceeds. But since that is not the National Bank’s sphere of responsibility, it may choose this option, even if it means reduced foreign exchange proceeds.

Belarusian exporters have already suffered huge losses due to the Russian rouble being devalued, and their competitiveness on the Russian market has dipped. Nevertheless, the National Bank might choose to smoothly depreciate the national currency against the US Dollar, while reduced foreign exchange proceeds will be written off as the shortcomings of industrial and commercial enterprises’ sales departments.