National Bank "Absolutely Rules out" Devaluation of Belarusian Ruble

In connection with the reduction of sovereign credit ratings of the Republic of Belarus, as well as the National Bank’s adoption of measures on the domestic market, there come some issues on the economic situation in the Republic Belarus towards the monetary authorities’ control from foreign investors, major trading partners of our country and the leading international insurance organization, explained the National Bank.

In this regard, BNB informs that in order to stabilize the economy and reduce the negative  current account balance, the course at a substantial tightening of monetary policy and limiting the aggregate domestic demand has been underway since the beginning of 2011. There are all available tools for this purpose, National Bank assured.

The following measures were taken in the area of monetary policy in January-March 2011:

1.5% increase of refinancing rate of the National Bank (up to 12%), 2% increase of interest rates on standing facility tools to support the liquidity ratio (up to 18%), rates on auction transactions of liquidity support (up to 16.5%) and bilateral swap (up to 17%);

standard increase of mandatory reserves on attracted funds of legal entities in national currency and borrowed funds in foreign currency from 6% to 9%;

6.17% reduction of Belarusian ruble rate to a basket of foreign currencies consisting of U.S. dollar, Euro and Russian ruble since the beginning of the year.

The corridor of changes of the basket of foreign currency values is plus / minus 8% of the central values ​​that has emerged by the beginning of the year. Belarusian ruble rate to the dollar and euro will be determined on the basis of mutual exchange fluctuations on world markets.

National Bank rules out the possibility of a one-time significant adjustment of the Belarusian ruble exchange rate.

If necessary, the National Bank is ready to consider and implement other measures that would correct the external imbalance and ensure the sustainability of external positions in the short and medium term.

Regarding the current state of international reserves, their volume in the national definition has fallen by $68 million up to February and totaled $5.51 billion on March 1, 2011. At the same time Belarus made February external debt payments in full and on time, including payments of the first coupon on sovereign Eurobonds, reported the National Bank.

At the same time, in early March, the republic’s economy faced a sharp increase in demand for foreign currency by the population and economic entities, provoked by fears of a possible one-time devaluation of the currency.

In this regard, the National Bank of the Republic of Belarus has taken a number of operational measures, aimed to stabilize the situation and prevent the development of negative tendencies in the domestic market, including the speculative pressure on the Belarusian ruble exchange rate.

So, the Belarusian Currency and Stock Exchange has introduced a temporary order of foreign currency purchase on April 1, according to which the priority will be given to demands of enterprises and banks to pay import contracts for the purchase of medicines, natural gas, the repayment of loans in foreign currency, as well as for other purposes.

At the same time, economic entities and banks still have a possibility of a free purchase of foreign currency in the OTC market, which can redistribute more than 70% of foreign exchange earnings, coming into the country. Thus, the OTC market would meet the bulk requirements of business entities of the Belarusian economy in foreign currency.

In order to improve the effectiveness of market regulation of supply and demand, the National Bank of Belarus has raised the boundaries of the Belarusian ruble exchange rate fluctuations on the interbank market up to 10%. Thus, the National Bank has made an emphasis on the functioning of the OTC market as the most market-oriented segment of the foreign exchange market.

«These measures are aimed to primary and unconditionally meet the demand for foreign currency for the critical targets, to implement obligations to foreign partners by the residents of the Republic of Belarus, as well as to save the state reserves to implement the debt policy of the state, according to which Belarus should follow the principle of priority servicing and repayment of external public debt at the legislative level,» says the National Bank.

«Strategy for the management of external public debt is based on the principles of ensuring the needs of the state for financial resources at the lowest possible cost of borrowing, saving the volume of external public debt at an economically safe level, as well as for minimization of the public debt’s annual cost and enforcement of obligations in full,» the report indicates .

While the situation on the domestic market of Belarus is stabilizing and adequate amounts of external financing are being provided, the National Bank promises to lift previously imposed controls on transactions of purchase and sale of foreign currency and to ensure full convertibility of the Belarusian ruble on current operations.

In this regard, the National Bank of the Republic of Belarus decided on March 31, 2011 not to apply more restrictive measures in the sphere of currency regulation and currency control.

To maintain the balance of payments in a stable state, government of Belarus has asked the Russian and Eurasian Economic Community Crisis Fund for a $3 billion stabilization loan,  recalled the NBB.

At the same time in order to achieve balance in the economy and reduce foreign trade deficit, the government and National Bank are currently developing a program of economic measures and structural reforms, involving the privatization of state property.

In order to reduce the planned budget deficit of the government sector from 3% to 1.5% of GDP, the work is being carried out to increase revenues and reduce budget expenditure.

In addition, inflow of foreign direct investment in the amount of 6.2-6.4 billion is expected this year. The main task, given to the National Bank and the government by the president, is to prevent further decline of public reserves and their increase up to the value corresponding to the three-month average imports ($10.9 billion) by the end of 2011, which provides the necessary level of economic security, reported the NBB.

«The actual achievement of a sufficient level of reserves will be the starting point for working with international rating agencies to raise a sovereign rating of Belarus to a qualitatively new level,» assured the National Bank.