Setting is ready for discount rate reduction
On March 5th, the interbank market rates fell below 19% pa for the first time in 2013.
The government managed to convince the head of state to relax the monetary policy. The National Bank improved the banking system’s liquidity, which resulted in reduced interest rates in the interbank market. The February consumer price index permits the National Bank to reduce the discount rate gradually.
On March 1st, 2013 the Council of Ministers’ meeting set a task to converge interest rates on loans in local and foreign currencies. Due to high interest rates on loans in national currency (40% and higher) the state economic modernization programme has been jeopardized. Banking system will be forced to find internal and external reserves to provide for a low-cost supply of “long” money.
The National Bank has ensured the liquidity excess in the banking system in record-high volumes. As of March 7th, the volume of funds, placed by banks on National Bank’s overnight deposits was BYR 9.1 trillion. The funds were placed at 19% interest rate. The volumes of available funds in the banking system resulted in the interest rates at the interbank market falling below 19% pa – for the first time in 2013. In turn, banks continued reducing rates on individual deposits. This will result in lower interest rates on business loans.
To justify the discount rate reduction, the National Bank had to refer to reduced inflation. On March 7th, Belstat published data, quoting February CPI at 1.2%. In January-February, inflation was 4.3% and the pricing policy has been put under state control, which empowered the National Bank to announce the potential discount rate reduction. As a result, payments within loan agreements that refer to the discount rate will reduce.
Therefore, enterprises will receive access to loans at reasonable interest rates. Rapid decline in interest rates should not be anticipated, because the National Banks has grounds to be afraid of the sharp rise in lending in the local currency, which against the lack of success in the international trade and the potential growth of investment imports could deteriorate the currency market situation.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.