Belarus holds rate as inflation rises from falling ruble

October 14, 2020
The central bank of the country of Belarus, which continues to see widespread protests over a contested presidential election on Aug. 9, left its benchmark interest rate steady, saying inflation is still expected to decline toward its target despite a recent acceleration due to a weakening of the exchange rate.
     The National Bank of the Republic of Belarus (NBRB) kept its refinancing rate at 7.75 percent, unchanged since June when it was cut following a request by the country’s president, Alexander Lukashenko, who has ruled the country since 1994.
     NBRB has cut its refi rate three times this year by a total of 125 basis points and 19 times since April 2016 by a total of 17.25 percentage points.
     On Aug. 12, when the board last met, it decided to meet today, ahead of a previously scheduled meeting on Nov. 11, which also will be held.
     On Monday European Union (EU) foreign ministers agreed to sanction Lukashenko and other senior officials amid worsening police violence against protesters who say the August election, in which Lukashenko said he won with 80 percent of the vote, was rigged.
     Tens of thousands of Belarusians have demonstrated every weekend since August to demand new elections and on Sunday 713 people were detained by police, which now is allowed to use military-style weapons.
     Exiled Belarusian opposition leader Sviatlana Tsikhanouskya, who protesters say won the election, has set a deadline of Oct. 25 for Lukashenko to leave office or face nationwide strikes that would paralyze the country.
     The EU cited a complete lack of will by Lukashenko to engage in any discussions over holding new elections leaves it will little choice other than to proceed with sanctions.
     Following the election, the Belarusian ruble has continued to weaken though it has recovered in the last month after hitting a record low of 2.68 to the U.S. dollar on Sept. 3. Today it was trading at 2.58 to the dollar, down 18.6 percent this year.
     In January the central bank and government adopted a strategy to improve trust in the Belarusian ruble, which was introduced in July 2016, and reduce reliance on foreign currencies in domestic transactions.
     More than 90 percent of government debt is denominated in foreign currency and the strategy includes full transitioning to inflation targeting by 2021.
     In September the central bank said its reserves had declined by 15.7 percent that month to US$7.5 billion and it paid down $351.7 million in external debt. Belarus has some $3.6 billion of U.S. dollar bonds outstanding and some $8 billion in loans from Russia.
    Inflation in Belarus rose to a higher-than-expected 6.1 percent in September from 5.6 percent in August, with NBRB saying this was due to higher prices for imported goods due to a weakening of the ruble in August against a background of higher demand for foreign currency.
     Inflation by the end of this year is estimated to be around 6 percent, with the weakening of the ruble pushing up inflation in the short term, the central bank said.
     In the medium term NBRB said prolonged disinflationary factors are expected to dominate and push inflation back to its targeted trajectory near 5 percent.
    In the first quarter of this year Belarus’ gross domestic product shrank 0.20 percent year-on-year.