By Alexander Belkovsky
The step taken by the National Bank may be modest (just half a percent) but it continues a journey in the right direction, being the main indicator through which the credit and deposit rates are calculated. Previous reductions have been by as much as 2 percent per month on average, making deposits in Belarusian Roubles less profitable; no doubt, those with savings will be pleased to see the trend slowing. However, those keen to borrow can only hope for further reductions, to make loans more accessible.
The current cautious reduction of the refinancing rate is perfectly justified and reasonable, since rates must be lowered gradually and carefully, in order to maintain savings at an adequate level. A significant fall would lead to mass withdrawals of funds, creating a huge draw on the banking system. At present, the National Bank reports a constant flow of funds into the banking system of the country.
For some years, savers have been disappointed to see their interest rates lag behind those charged on loans. The Chairman of the Board of BelVEB bank, Pavel Kallaur, explains, “We have gone through stages of macroeconomic stabilisation more than once. Public panic has been regulated by the size of the refinancing rate. We can only maintain high savings rates when the economy is stable; realistic interest rates must be set. The question is not how far the refinancing rate can be reduced, but how it relates to the real level of inflation in the country.”
Along with the gradual reduction of the refinancing rate, the National Bank is also busy removing excess Rouble liquidity from the banking system (a significant amount of ‘unused’ money). This will aid long-term goals for the banking system and the economy in general, maintaining the stability of the exchange rate and interest rates while providing stability and predictability on the financial market.
“If the country has a positive balance of payments, currency settles in gold and foreign currency reserves, while Belarusian Roubles appear on banks’ correspondent accounts,” explains Mr. Kallaur. “We are now seeing a high influx of revenue, so banks will have more liquidity than they require — taking into account the level of inflation.”
This is a normal macroeconomic process, which can be regulated via ‘sterilisation’. The balance of payments is healthy, with foreign trade reaching $41,633m in the first half of 2012: imports stood at $18,926.9m while exports reached $22,706.1m.
The foreign trade balance almost reached $3.8bn, proving forecasts by individual banks to be premature; excess liquidity in Belarusian banks could have driven rates upwards, but this has been avoided.
Representatives of the banking sector are ready to note any trend in borrowers’ interest rates but the fall remains modest. “We can hardly say that Rouble lending volumes are rapidly growing; further reductions are needed before the process stabilises and becomes a trend,” says Mr. Kallaur. He notes that economic activity and demand for Rouble loans will rise when rates fall to 25 percent.
