Belarusians prepare for devaluation

The National Bank’s data suggests that the NB’s efforts to reduce the devaluation expectations among the population have failed – people have started converting their rouble savings into hard currency. Devaluation appears inevitable, even if Belarus receives new loans.

In November, the population changed their views on the Belarusian rouble’s stability. In November the outflow of rouble deposits from the banking system was record-high. People converted their roubles into US Dollars and Euros, which led to record-high net purchases of cash and non-cash foreign currency. The population acquired about USD 325 million in total, which led to Belarusian international reserves depleting in November.

With these actions, the population attempted to secure their savings. The population noted the devaluation in Russia and logically assumed that similar events could happen in Belarus in the short term. The population started converting roubles into US Dollars regardless of the National Bank’s significant efforts to reduce the devaluation expectations. In November, the Belarusian rouble was as stable as ever (rouble devalued only by BYR 90), deposit rates went up to 30% per annum, and there was no shortage of foreign currency in the exchange offices. Nevertheless, the population’s fears have not gone away. The difference between the BYR/USD exchange rate in the exchange offices and the National Bank’s exchange rate demonstrates there is a persistent demand for the international currency in Belarus.

The National Bank might escape devaluation only if Belarus receives new large enabling her to meet the increased demand for foreign currency for a specified period. However, that would not resolve the issue of slumped Belarusian exports to Russia (make up to 42% of total exports). If the current exchange rate policy persists, the negative trends in foreign trade might also increase. A number of industrial enterprises might suspend their activities, social tension might grow and international reserves might reduce to a critical level. Unfortunately, devaluation of the Belarusian rouble (within the margins of the RUR devaluation) would not solve all the problems in the Belarusian economy. The Belarusian economy requires structural reforms, especially in private property, but the Belarusian leadership is not susceptible to such measures.

The population realistically assesses its risks in terms of rouble savings depreciation and seeks to minimize potential losses from future devaluation. New borrowings can only delay the moment when the country’s leadership would be forced to devalue the national currency.