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October 17 – October 23, 2011

Belarusian ruble devalues by 18% in two weeks

The situation has not changed
Belarusian ruble devalues by 18% in two weeks

Last week the Belarusian currency continued depreciating and in the past two weeks it had devalued by 18%. The only way to stabilize the foreign exchange market in Belarus is to receive a large loan or to hold a mass-scale privatization of the state property.

Last week the depreciation of the national currency resumed. Two weeks following the introduction of the supplementary trading session the Br exchange rate had been increasing, however during the last two weeks the Belarusian ruble devalued again, breaking the records of the September black market exchange rate, before the introduction of the supplementary session. On 5 October the market exchange rate was Br 7610 per USD, while the official exchange rate was Br 5748. The gap between the rates was less than Br 2000. Many experts expected the rates to converge. However as soon as 13 October the market exchange rate reached Br 9010 per USD (Br devalued by 18%). As a result, the margin between the two exchange rates increased significantly again.

The volume of money in Belarus on 1 October 2011 amounted to Br 78,920 trillion, it increased in January-September by 57.02%. In September the money volume increased by 10.4%. Cash in circulation (monetary aggregate M0) amounted to Br 7.727 trillion on 1 October 2011 and increased by 15.2% in September (by Br 1.17 trillion) following August decrease by 5%. In the course of the past 9 months the aggregate has increased by 71.95%.

The gold reserves of the National Bank of Belarus (NBB) on 1 October 2011 amounted to 31 tons. On 1 July the gold reserves amounted to 31.5 tons. Therefore in the third quarter the gold reserves declined by 0.5 tons, or by 1.6%.

“This decision is another step in the consistent implementation of the macroeconomic policy of the National Bank and the government, which is aimed at alleviating pressure on the exchange rate of the Belarusian ruble and decreasing the inflation rate,” said the NBB press office.

On 14 October the refinance rate was increased to 35% per annum. “This decision is another step in the consistent implementation of the macroeconomic policy of the National Bank and the government, which is aimed at alleviating pressure on the exchange rate of the Belarusian ruble and decreasing the inflation rate,” said the NBB press office.

On 14 September the refinance rate has been increased by 3% to 30% per annum.

Comment

The depreciation of the Belarusian ruble was due to a number of reasons. Firstly, the importers waited to the last moment to purchase the foreign currency, hoping for better exchange rates. Now all the pent-up demand has been put up on the market. Secondly, exporters, due to “inadequate” growth of the Br, as well as due to taxation of exchange rate margins, were delaying the sale of the foreign currency, which resulted in an excess of the demand over the supply. Thirdly, the National Bank almost did not interfere in the trading sessions therefore the rate might continue fluctuating up and down. Fourthly, the IMF mission is working in Minsk at the moment therefore the National Bank tries to show them the real market. Finally, regardless of all the assurances, the authorities continue using the printing press, therefore Belarusian rubles return to commercial banks as increased demand for foreign currency from the population and businesses.

Depreciation of the Belarusian ruble will again spur the inflation and devaluation expectations of importers and exporters.

Depreciation of the Belarusian ruble will again spur the inflation and devaluation expectations of importers and exporters. However, most likely, next week the Br exchange rate will stop falling due to taxation week (tax-payers will need Br to pay taxes due on 20 October). However in the long term, the only way to stabilize the foreign exchange market in Belarus is to receive a large loan or to hold a mass-scale privatization of the state property.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.
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