MINSK, 20 September (BelTA) – The Board of the National Bank of the Republic of Belarus has commented on its decision to keep the refinancing rate unchanged – at 10% per annum. The commentary is available on the website of the National Bank, BelTA has learned.
“While taking this decision, members of the Board took into account projected inflation dynamics and the impact of external and internal factors, as well as the need to keep the inflation close to the 5% target set for 2019-2020,” the National Bank informs.
The external factors include the deterioration of the external environment caused, among other things, by the situation in Russia, first of all, increased trade restrictions and sanctions against it. The capital outflow and the weakening Russian ruble will spur inflation processes in Russia.
The increased uncertainty can be felt across global financial markets and in the geopolitical environment. The escalation of trade wars poses a risk of economic slowdown in Belarus' major trading partners and exacerbates fluctuations on financial markets.
External risks can unleash inflation and increase inflation expectations in Belarus.
The inflation rate in Belarus is within the forecast set for 2019-2020. In August 2018 consumer prices rose by 5% year-on-year; this was higher than in the previous months (4.1% in June and July 2018). Among the reasons was the increase in administratively regulated prices, including tariffs for communication services, retail prices for fuel and tobacco products.
The core inflation reached 3.3% in August, mostly under the pressure of short-term factors (increased prices for poultry meat and pork). The core inflation is expected to gain some speed by the end of the year, as the abovementioned short-term factors will stay in place, while the prices for imported products and services will grow against the backdrop of worsening external economic conditions.
This year's inflation is expected to be close to 5.5%; in the forthcoming years it will stay around the target of 5%.
Economic growth is reaching the equilibrium level. Economic activity in Belarus is slowing down after the accelerated recovery growth. Consumer demand remains pretty high. At the same time, the growth in consumer lending and real salaries is decelerating.
The National Bank believes that in the future the economic growth rate will be close to the equilibrium and, consequently, it will not have an impact on prices. Social surveys conducted in August 2018 suggest that the number of people inclined to take on loans to buy things is falling, which means that consumer behavior will not have any significant impact on inflation processes.
In order to keep inflation pressure from the external sector at bay and hit the inflation target, it is necessary to preserve the existing monetary conditions. In Q3 2018, the monetary conditions had a disinflationary impact, first of all, due to the dynamics of the real exchange rate of the Belarusian ruble.
The dynamics of interest rates on the monetary market secures a moderate growth in business lending and maintains money supply within the planned parameters. Overall, interest rates cause neither acceleration nor slowdown of inflation.
“In such conditions, keeping the refinancing rate unchanged will help maintain the inflation rate at 5% in the years to come,” the National Bank informed.
Further decisions on the interest rate will depend on inflation forecasts and a possibility and extent of inflation risks threatening the fulfillment of the goals.
The next session of the National Bank Board to discuss monetary management is scheduled for 19 December.
