Time to see how rate works out

National Bank increases refinancing rate to 18 percent

By Vladimir Veremeev

The refinancing rate is being set at this high level for the first time since 2004. As the National Bank’s official commentary reads, ‘the measure aims to raise profitability of Belarusian Rouble deposits and to strengthen the protection of Rouble bank savings against inflation’.

The decision follows simple logic. According to the National Statistical Committee, from January-May, inflation reached 25.4 percent, so deposit rates should be no lower. “Otherwise, bank savings lose their attractiveness,” explains doctor of economic sciences Alexander Luchenok. Commercial banks already offer deposits for Belarusian Roubles at a rate of 25-30 percent per annum, boasting names such as ‘Large Stake’, ‘Everything will be OK’ or ‘Winter Treasure’. The increase in the refinancing rate should generate even more attractive offers. Mr. Luchenok believes that, this year, the basic figure could reach at least 30-32 percent. Deposit rates will rise accordingly.

Loans are another matter, since banks are not charities. While attracting deposits at a rate of 30 percent, they offer loans at an even higher rate. Mr. Luchenok notes that people’s incomes are growing slower than credit rates, with citizens unable to receive volumes of loans as great as before. Reliance on credit is now being substituted for some by living beyond their means. To some extent, from the point of view of the economy, it’s useful in helping balance consumption and production — our wishes and possibilities.

Will enterprises be able to afford these new rates and continue developing? Actually, it’s hard to find a branch with a profitability of 30 percent. Mr. Luchenok explains, “The increase in credit rates is unlikely to cause problems for companies which enjoy easy access to assets — such as those involved in trade. However, production and long term investment projects may face difficulties. It’s unprofitable to take out long term loans just now, so investment is likely to fall.”

“On the other hand, high rates inspire better efficiency. Previously, credit was affordable, so enterprises didn’t need to make any major changes to their operations,” continues the expert. “Now, on taking a bank loan, they need to think of how to seriously raise profitability. Otherwise, they’ll fail to repay the money. With this in mind, the present interest rate policy should stimulate effective economic activity.”

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