Current issues of monetary policy of the Republic of Belarus: current situation, fulfillment of external obligations

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Current situation on the foreign exchange market

Approximately since the end of July, there has been an increased demand for foreign currency in the domestic market of the Republic of Belarus.

At the same time, the key factors determining the exchange rate dynamics are the supply and demand for foreign currency.

There are no fundamental factors that would explain the current exchange rate dynamics, apart from the high level of devaluation expectations. Accordingly, as soon as expectations decrease, the foreign exchange rate should also adjust.

The National Bank does not set itself the goal of maintaining the exchange rate at a certain level and strives to operate in a floating exchange rate regime, reserving the right to sell or buy currency in order to smooth out sharp fluctuations. Currently, the current level of gold and foreign exchange reserves is sufficient to smooth out and prevent sharp changes in the exchange rate. It is difficult to predict how long negative expectations will persist among economic entities and the population.

An outflow of deposits in Belarusian rubles is observed in the deposit market. According to the National Bank's estimates, this outflow does not create global challenges for the foreign exchange market; its scale is close to what was observed in March of the current year. Current incomes of the population, which citizens are trying to convert into foreign currency, have a greater impact on the foreign exchange market.

The problems that have arisen with cash currency in banks are of a technical nature due to a sharp increase in demand for cash currency, as banknotes need to be ordered and brought from abroad.

Thus, in recent years, the population of the Vitebsk region has been a net seller of cash foreign currency. Currently, the situation has changed, and citizens' demand for currency is growing.

If in April 2020, demand from the population in dollar equivalent amounted to 22.2 million US dollars, in May - 26.6 million US dollars, in June - 33.5 million US dollars, then in July - 43.7 million US dollars, and for 25 days of August - already 49.7 million US dollars.

Banks are recommended to take comprehensive and exhaustive measures to promptly replenish exchange offices and cash desks with cash in amounts necessary for the smooth conduct of currency exchange operations during the business day and for the sale of cash foreign currency to the population in accordance with the emerging demand, as well as to approach the establishment of exchange rates in a balanced and economically justified manner and to promptly inform clients about them.

Banks are now actively working on ensuring the delivery of cash currency.

It is worth noting that citizens have the opportunity to carry out non-cash currency exchange operations, including using remote banking services for clients, as well as using bank payment cards issued to accounts in foreign currency.

Fulfillment of external obligations

The Republic of Belarus has established itself as a conscientious payer.

From the perspective of the National Bank, the overall debt situation is not tense. The ratio of the public debt to GDP is within comfortable limits. At the same time, it is necessary to consider the structure of the debt. For example, the Ministry of Finance has all long-term debt. The Ministry of Finance's foreign currency balances in accounts at the National Bank currently exceed the payments due in the next 12 months by 1.6 times.

Measures taken to stabilize the situation

The measures that the National Bank has taken and will continue to take to stabilize the situation are exclusively of a market economic nature.

The introduction of any restrictive or prohibitive measures, such as the return

of mandatory sale of part of foreign currency earnings, targeted purchase of currency, or freezing of deposits, is not considered, as it will bring the opposite effect and only worsen the situation.

It should also be noted that there are no fundamental macroeconomic imbalances in the country. Accordingly, there is no need to adjust the monetary policy pursued in previous years.

The only thing that is worth paying attention to now is the growth in demand for ruble credit resources against the backdrop of high devaluation expectations.

At the same time, the National Bank does not see the need to hold an additional meeting of the Board on monetary policy, apart from those already planned, since at the moment the level of expectations is such that it cannot be influenced by raising the rate.

The main efforts of the National Bank are now aimed at regulating the money supply in Belarusian rubles. Therefore, it was decided to limit the provision of overnight loans to banks from August 24 to September 15, 2020.

Support for banks' liquidity will be carried out mainly on an auction basis, which will help curb the surge in ruble lending. There are no intentions to return to targeted support for the economy.

Main Department of the National Bank
of the Republic of Belarus for the Vitebsk Region.