By Boris Alexeichenko
It’s natural to feel panic at the idea of devaluation, since Belarus has a history of implementing this strategy. People have come to fear the unexpected, regardless of official announcement and are sceptical regarding promises of currency stability. Sadly, such feelings negatively influence the market, notes the Dean of the Belarusian State University’s Economics Department, Mikhail Kovalev.
He tells us, “The foreign currency exchange rate depends not only on objective factors, sadly. Public panic can influence it, as in 2011, when the necessary 20 percent devaluation was postponed in response to public feeling. Delaying the decision resulted in the devaluation having to be almost three times as great.” He believes that it’s essential for the authorities to explain their monetary-credit policy ahead of time, to promote a feeling of trust and see off speculation. “There was a recent SMS campaign, with messages warning of a ‘planned’ devaluation by the National Bank. Its prompt reaction and clear explanation was helpful. We’d benefit from legislation preventing Internet sites groundlessly generating panic however.”
Not long ago, the National Bank of Belarus made an official announcement that, in 2013, it would continue to use a market-based exchange rate policy. This year, the Belarusian Rouble exchange rate is being guided by 2012 principles, proceeding from demand and supply, with minimum participation from the regulating body. “The exchange rate of the Belarusian Rouble falls when there’s more demand for foreign currency and rises when there is excess supply of foreign currency. Flexibility reflects the market situation but does not provide reasons for sustainable movement of the exchange rate in either side,” the National Bank explains.
Recent reform has moved Belarus from an ‘anchor’ rate fixed to a basket of currencies (within a corridor of limits applied domestically before the foreign currency crisis emerged) towards a more flexible and manageable rate. The move has been praised by such institutions as the International Monetary Fund and the World Bank. However, the National Bank continues to reflect the foreign currency basket in its calculations for the Belarusian Rouble rate.
“The appointment of a new chairman of the board has given the National Bank’s foreign currency policy firmer definition — especially regarding emission, which must be tightly controlled. Mr. Kovalev notes, “Of course, a tough monetary policy has a down-side, as it can hamper economic growth. However, it’s better to enjoy a stable rate than the vague promise of GDP growth.”
Depositors will be wondering how best to keep their money in 2013, since the difference between rates on Rouble and foreign currency deposits is significant: 40-43 percent per annum compared to just 5-6 percent. Of course, some people have bought foreign currency state bonds (issued by the Finance Ministry), which guarantee a return of 7 percent per year. However, banks don’t view these as a serious rival to currency deposits, since their emission is smaller than the market of foreign currency deposits. “In coming months, no drastic changes are expected regarding Rouble and foreign currency rates: the dollar won’t seriously fluctuate against the Euro or the national currency. The refinancing rate stands at 30 percent, so Rouble deposits are bringing a good return. Even with the planned stage-by-stage devaluation of 5-10 percent by the end of the year, Rouble deposit rates will remain profitable with little risk,” explains Mr. Kovalev. “Meanwhile, the profitability of foreign currency deposits — and that of much-spoken-of currency bonds — is much lower. I’m convinced that it’s more profitable to hold Belarusian Rouble savings at present.”
Impressively, a deposit of Br20m would generate a profit of Br8m (around $940) in a single year, assuming a rate of 40 percent per annum. The same sum saved in foreign currency (at 5 percent) would generate a mere $117 in profit. In fact, those saving in Dollars would make no profit until the exchange rate reached Br11,900, which is not expected in the near or distant future.