Belarus Raises Key Rate to 25% as Russian Rout Fuels Devaluation

The Belarusian central bank increased its benchmark rate for the first time since 2011 and rolled out other emergency measures to stabilize the financial system as the country reels in the aftermath of the crisis in Russia.

The key refinancing rate was increased by 5 percentage points to 25 percent, effective tomorrow, according to a statement published today. The central bank also devalued the national currency, the ruble, by 7 percent against the dollar and scrapped the 10 percent fee imposed on purchases of foreign currency by individuals.

“The National Bank and the government will in the future continue to take consistent measures to improve macroeconomic balance and strengthen the stability on the country’s financial and currency markets,” the regulator said in the statement. The bank said it will also limit the use of international reserves to support the ruble.

Contagion from the Russian ruble’s decline of more than 40 percent last year has spread across the former Soviet Union, putting pressure on currencies from Turkmenistan’s manat to the Armenian dram. Belarus is resorting to higher borrowing costs and dismantling capital controls less than a month after their introduction failed to arrest the ruble’s depreciation.

Belarus became the first former Soviet republic to try to fence off its economy with restrictions on cross-border money flows as the fallout from Russia’s currency rout rippled through the region. The authorities in Minsk, the capital, have since been easing the measures, with the government this week scrapping a surcharge on currency purchases by companies.

Leadership Change

Today’s policy moves are the biggest since Pavel Kallaur replaced Nadezhda Ermakova at the helm of the central bank in late December. Kallaur worked at the central bank in 1993-2010 before leaving to become the chief executive officer of the Belarusian unit of Russia’s state development lender Vnesheconombank.

Belarusian President Aleksandr Lukashenko, who has ruled the nation of 9.5 million for two decades, dismissed the prime minister, the head of the central bank and other top officials days after the authorities restricted access to foreign currency.

The Belarusian ruble has lost more than a fifth of its value since capital controls were imposed.

The central bank is stepping back from currency interventions and said it will only use its reserves to “smooth out peak value fluctuations” in the ruble’s exchange rate. Reserves fell $760.8 million last month, reaching the lowest level since October 2011.

The regulator cut rates on its liquidity operations to 40 percent starting Jan. 14, according to today’s statement. It also lowered reserve requirements for foreign-currency liabilities to 12.5 percent from 13 percent in January and to 10 percent in February.

Belarus is looking to other sources to replenish its coffers with foreign currency and has reintroduced an export duty on potash, one of its chief sources of budget revenue.

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