National Bank vs Government: Fighting Inflation without Severe Devaluation

The government and the National Bank, under the supervision of the presidential administration, are trying to stimulate economic growth and prevent a severe devaluation. The ruling class is eager to avoid a repeat of the 2011 financial crisis, when internet activists organized decentralized protests in urban squares.

The ruling class supports economic growth through investments in state-owned companies and also stimulates domestic demand while maintaining relatively low official inflation – 5.6% annually. Gross domestic product grew by 4.1% in January-April.

The government is promoting measures to stimulate the economy. Domestic demand is supported by credit “hooks” and rising wages. Citizens’ incomes continue to grow. The Council of Ministers has forced “Belarusbank” to launch a loan for purchasing Belarusian goods at a preferential rate of 4% per annum (which is below the official inflation rate). Economic growth positively influences trust ratings in state institutions.

Meanwhile, the National Bank aims to limit consumer lending — a decision was made to increase interest rates on real estate loans.

Large injections into the public sector and the indebtedness of the population increase the risk of the ruble’s collapse and a decline in people’s incomes. This has happened in Belarus before, for example, in 2008 and 2011.

In 2011, the collapse of the national currency, a financial crisis, and a sharp decrease in income levels led to increased societal tension. A series of “silent” protest actions under the banner “Revolution through social networks” swept across the country. Actions were coordinated through the internet and were decentralized — without clear organizers. Initially, law enforcement was disoriented by the scale of the actions and the self-organization of the protestors — despite having successfully destroyed an organized protest movement against election fraud in 2010. Then, law enforcement carried out a post-election pogrom of civil society and opposition structures with extensive purges. Nevertheless, this did not stop a new wave of protests initiated by activists who were unknown at that time.

Thus, the ruling class will strive to avoid a severe devaluation. The devaluation of the ruble will be gradual to avoid increasing societal tension due to a sharp decline in prosperity.