Belarusians devaluation expectations have lowered but it is not clear for how long

In February, the National Bank was able to reverse the negative dynamics with regard to people’s deposits. Amid falling incomes, high interest rates and strengthened Belarusian rouble against the US Dollar have raised the attractiveness of BYR deposits for Belarusians. Amid languishing international reserves, the National Bank has limited opportunities to reduce interest rates on deposits drastically. However, high interest rates are unlikely to lead to further growth in BYR deposits.

According to the National Bank, in February 2015, the volume of BYR deposits in the banking system increased by BYR 2.3 trillion (circa USD 200 million), while currency deposits increased by USD 88.5 million – the largest increase in BYR deposits since August 2014. In addition, in February 2015, the population was a net seller of foreign exchange. Some funds from currency conversion could end up on BYR deposits in Belarus’ banking system.

In February, average interest rate on BYR deposits was 47% per annum. Some banks offered up to 55% per annum. Thanks to strengthening of the Russian rouble against the US Dollar and the new formula for the currency basket, the Belarusian rouble has strengthened significantly. Cash currency is widely available in currency exchange offices. Lower incomes have reduced the pressure on the currency market and people started regarding rouble deposits as an additional source of revenues amid falling incomes from other sources.

However, deposits cannot grow any further. Interim management has been introduced in the Delta bank, which offered the highest interest rates on BYR and currency deposits. Other banks might soon start experiencing problems too. Negative trends on the oil market might trigger high volatility of the Russian rouble, which will affect the Belarusian rouble exchange rate and reduce Belarusians’ interest in BYR deposits.

Belarus still has not managed to secure external funding, which, amid shrinking international reserves raises concerns about the currency market situation in the near future. In the given circumstances, the National Bank will be prompted to maintain high interest rates on rouble deposits in order to preserve their high attractiveness until Belarus receives a major loan from foreign creditors.

All in all, the National Bank has managed to control citizens’ devaluation moods with high interest rates on deposits. It will attempt to preserve this trend for as long as it can.