Collapsing oil prices and Russian rouble could destabilise Belarusian rouble before elections

Amid falling oil prices, the collapse of the Russian rouble has led to the devaluation of the Belarusian rouble by 9.7% as of August 1^st. On the one hand, if Russian rouble continues to depreciate, the Belarusian authorities will require emergency measures to preserve relative stability on the foreign exchange market during the election period. On the other hand, the devaluation of the Russian rouble will help to partially unload Belarusian warehouses stocked with ready products and, therefore, to resume production and improve employment.

Over the past week, oil prices fell below USD 46 per barrel and Russian rouble depreciated and came close to 70 RUR per USD.

On August 20^th, Kazakhstan’s tenge devalued and Russian rouble depreciated against the US Dollar (both countries are Belarus’ partners in the Eurasian Economic Union), leading to a serious pressure on the Belarusian rouble. Russia is Belarus’ main trading partner and the depreciation of the rouble means lower revenues for enterprises exporting finished products. In addition, news about the depreciation of the Russian rouble has motivated people to exchange Belarusian roubles for US Dollars. As a result, the Belarusian rouble exchange rate against the US Dollar has declined over last week from BYR 15,991 per US Dollar to BYR 16,730 per US Dollar.

Meanwhile, Russian Central Bank is not planning to use its foreign exchange reserves to support the rouble, which is likely to lead to its further depreciation. Russian economic authorities confirmed, that negative trends in the Russian economy due to falling oil prices and depreciating rouble were likely to continue in Q3 2015.

In 2015, Russia pays for Belarusian exports circa 80% in Russian roubles. The Belarusian National Bank, in turn, is not too keen about spending international reserves in order to support the Belarusian rouble. Perhaps, in another situation Alexander Lukashenka could agree with that, but the threat created by rouble depreciating a month and a half before the elections is a political risk.

Meanwhile, the relative price reduction (in Russian roubles) on Belarusian products on the Russian market creates preconditions for growth in demand for Belarusian products, which could help to unload Belarusian warehouses. This, in turn, would allow major enterprises to resume production and improve employment situation.

Overall, the Belarusian authorities will act depending on the pace the Russian rouble depreciates. They will either make an emergency intervention in order to support the Belarusian rouble, or will choose a waiting game and smoothly depreciate the Belarusian rouble over a longer period.