Belarus: Central Bank axes refinancing rate to all-time low
August 7, 2019
At its 7 August meeting, the National Bank of the Republic of Belarus (NBRB) slashed the refinancing rate by 50 basis points to an all-time low of 9.50%. The rate on overnight credit was also cut, from 11.50% to 10.75%, along with the rate on the overnight deposit, from 8.50% to 8.25%.
A dip in inflation in the second quarter from Q1, with price pressures easing in April and June, prompted the NBRB to cut the refinancing rate for the first time in 14 months in a bid to boost activity. Inflation slid to 5.7% in June from 6.2% in May, mainly due to easing food prices and also in part due to a stronger Belarusian ruble. Moreover, according to the Bank’s assessments, inflation excluding seasonal adjustments fell below the 5.0% target level in Q2 2019. Meanwhile, a cut in the overnight credit and overnight deposit rates should boost the efficiency of the monetary policy transmission mechanism by enabling the NBRB to regulate the availability of liquidity to the banking sector.
Economic conditions remained grim in the second quarter as the end of preferentially cheap energy imports from Russia weighed on industrial activity and export performance. On the upside, Belarus’ state energy provider, Belneftekhim, reached an agreement with Russia to lift the oil transit tariff by 3.7%, to come into effect from 1 September, to compensate for reduced oil flows associated with the contamination of the Druzhba pipeline from Russia.
Looking ahead, the NBRB reaffirmed its projection that inflation will reach the 5.0% target by the end of the year amid downbeat domestic demand. While the statement was devoid of forward guidance, the Bank is set to maintain an accommodative stance.
The next monetary policy meeting is scheduled for 6 November.
Author: Nihad Ahmed, Economist