The central bank of Belarus maintained its benchmark interest rate but suspended its facilities that allow it to permanently offer and withdraw liquidity to commercial banks in a move it said was aimed at strengthening its control over the growth of the monetary base and money supply to “limit inflation.”
Instead, the National Bank of the Republic of Belarus (NBRB) will support banks’ need for liquidity by holding auctions for funds up to 7 days along with monthly auctions for 6-month funds.
“The volume of liquidity provision to banks will be determined based on the need to achieve operational and interim goals, said the central bank which is using the monetary base and money supply as intermediate monetary policy benchmarks in 2021.”
“The suspension of the permanent liquidity facilities will remain in effect until the bank’s board decides to resume them,” it added.
NBRB kept its benchmark refinancing rate at 7.75 percent, unchanged since June when the rate was cut following a request by the country’s president, Alexander Lukashenko, who has ruled the former Soviet republic since 1994.
Since April 2016 NBRB has been in a monetary easing cycle and has cut the refi rate 19 times and by a total of 17.25 percentage points, including three times in 2020 by a total of 1.25 percentage points.
The decision comes after the board’s scheduled meeting on Feb. 17 was pushed back to today because it had to carry out further analysis of the “dynamics of consumer prices” and the duration of the factors that had led to an acceleration in inflation.
The central bank also said today it has scrapped its schedule for board meetings this year, saying decisions on changing the refinancing rate and instruments for regulating banks’ liquidity “will be considered as necessary.”
According to its previously published schedule, the next meeting on monetary policy was scheduled for May 14. Inflation in Belarus, which continues to suffer from a political crises following a contested presidential election in August last year, has accelerated in the last seven months and hit 8.7 percent in February, the highest since January 2017, and up from 7.7 percent in January and 7.4 percent in December.
In November last year NBRB’s chairman said the rise in inflation was temporary and by the end of 2020 inflation would be around 6 percent and then approach the bank’s target of 5 percent by the end of 2021. In February the cost of fruits and vegetables was 15.9 percent higher than in the same month last year while regulated prices were up 8.5 percent.
A steady fall in the exchange rate of the Belarusian ruble has also pushed up import prices. After an initial drop in March last year due to the outbreak of the COVID-19 pandemic, the ruble bounced back but then suffered a new bout of weakness in August last year as protests broke out over the presidential election and since then the ruble has continued to lose ground.
Today the ruble was trading at 2.59 to the U.S. dollar, largely unchanged this year but down around 19 percent since the start of 2020. After Lukashenko said he won the presidential election with 80 percent of the vote, protesters have frequently gathered and more than 30,000 people have been detained by the police.
The European Union has imposed sanctions on government officials for repression against peaceful demonstrators and electoral misconduct. This week the Eurovision Song Contest rejected Belarus’ entry, saying it put the non-political nature of the competition into question and reactions to the entry risked bringing the reputation of the organization into disrepute.
Belarus’ entry to the popular song contest featured lyrics such as “I will teach you to toe the line” and sparked calls by a Swedish member of the European Parliament lawmaker for the country to be suspended from the competition.
