National Bank receives carte blanche for smooth devaluation of national currency

On September 6^th, President Lukashenko talked about the unacceptability of the decline in gold reserves. The foreign exchange market situation is characterized by the net foreign currency demand. Belarus’ gold reserves are shrinking. The pace at which the national currency will be devalued will depend on the population’s reaction to the National Banks’ measures.

Foreign currency demand by individuals and legal persons on the domestic market exceeded supply by USD 422.4 million. The National Bank managed to reduce the outflow of ruble deposits from the banking system, but not to neutralize the consequences of the devaluation expectations. The growth in imports resulted in greater foreign currency demand by businesses. The National Bank is no longer the foreign currency buyer at the forex.

In July 2013 Belarus’ gold and currency reserves fell below the critical level of USD 8 billion. In August 2013, international reserves reduced by USD 214.9 million. On September 1^st, the gold reserves were slightly more than USD 7.7 billion. The National Bank had some assistance from the growing gold prices on the world markets (the share of gold in the reserves increased by USD 112 million). The National Bank also received USD 100 million from foreign currency bonds placed on the domestic market, and over USD 200 million from short-term swap transactions in Belarus’ banking system. Potentially, the National Bank could have used other means to smooth the gold reserves’ decline.

Given the circumstances, the National Bank has little room for maneuver: either to watch the gold reserves decline or to stimulate exports by smoothly devaluing the Belarusian ruble. In the deposit market, national currency deposit interest rates will increase up to 40% per annum and higher. The growth of ruble supply is anticipated due to increased fuel costs and housing utility tariffs. Lukashenko’s statement about the unacceptability of spending the gold reserves has enabled the National Bank to act more aggressively in terms of weakening the national currency.