National Bank overestimates financial markets stability

The National Bank’s antirecessionary measures adopted in late December 2014 relieved the currency market to some extent. In February 2015, some restrictions in the banking sector will be lifted in order to demonstrate that the financial system is under control. However, the fragile stability on the financial market requires substantial foreign borrowing to sustain.

In late December 2014, aiming to stabilise the financial market situation, the National Bank adopted a number of measures, envisaging to restrict the demand for foreign currency in order to preserve the international reserves’ levels. These measures included restricting foreign currency sales to the population by the amounts supplied by the population. A tax on buying foreign currency had been introduced which was later waived. An additional factor, which has reduced the demand for foreign currency, was the introduction of price regulation, which, in turn, led to importers stopping their activity, and, reducing the foreign currency demand on the forex.

As of January 26th, 2015, the National Bank recalled its recommendation to limit upper margin for interest rates on short-term rouble deposits. Rouble deposits tied to US Dollar exchange rate against the Belarusian rouble became unavailable. As of February 1st, all restrictions on lending to the economy were lifted. Legal entities and enterprises have been enabled to borrow from banks provided their foreign currency proceeds are sufficient to cover their debt. Banks have been enabled to buy foreign currency from the Belarusian Currency and Stock Exchange in order to sell it in their currency exchange offices. These measures aimed to demonstrate stability on the foreign exchange market. The US Dollar exchange rate growth can be explained by its strengthening against other world currencies. The National Bank will continue adjusting the Belarusian rouble’s exchange rate fluctuations to a limited extent.

The current situation on the forex market is far from stable. Lifting of price regulation on imported products will lead to a gradual increase of demand for foreign currency. The Russian rouble will continue depreciating which will lead to the Belarusian rouble depreciation. Belarus has no access to foreign credit markets, and the price of Belarus’ Eurobonds fell to the lowest value since the beginning of trade, which does not allow Belarus to attract foreign investment.

In 2015, Belarus is due to repay USD 4 billion of public debt. She lacks own resources to repay that debt. The only potential creditor, Russia, is going through economic recession. Amid falling petroleum prices, her financial reserves have reduced as well as the ability to aid Belarus. It is impossible to normalise the forex market situation without solving the foreign debt problem. Now the repetition of the 2011 recession with the Belarusian rouble devaluation looks quite possible.

The National Bank attempts to demonstrate the financial market’s stability. However, its options are limited. The financial market’s situation may only stabilise if Belarus manages to attract foreign funding, while the only potential creditor is Russia.