ANALYSIS: Individuals continue to sell FX, deposit growth slows down

<p> Monthly overview of Belarus’ monetary market, Jan-Nov 2021 </p> <p>   </p> <p> MINSK, Dec 30 - PrimePress. Belarus’ monetary sector remains balanced. A favourable foreign trade environment contributes to the inflow of foreign currency into the country, and the exchange rate of the Belarusian ruble generally remains rather stable. At the same time, it is noteworthy that the National Bank shows no reaction to high inflation. The regulator has been in no hurry to make any statements about the monetary policy conducted in the country lately. </p> <p>   </p> <p> Table. Key performance indicators of Belarus’ monetary sector in 2021 </p> <table border="1" cellspacing="0" cellpadding="0"> <tbody> <tr> <td> <p>   </p> </td> <td> <p align="center"> Real </p> <p align="center"> standing as of Dec 1, 2021 </p> </td> <td> <p> Official forecast, as anticipated on Jan 1, 2022 </p> </td> </tr> <tr> <td> <p> Belarusian ruble’s average exchange rate against US dollar, Br/$1 </p> </td> <td> <p align="center"> 2.5392* </p> </td> <td> <p align="center"> 2.5678** (annual average rate) </p> </td> </tr> <tr> <td> <p> Refinancing rate, per cent per annum </p> </td> <td> <p align="center"> 9.25*** </p> </td> <td> <p align="center"> 7.75-8.25** </p> </td> </tr> <tr> <td> <p> Year-on-year inflation growth, % (key target of monetary policy) </p> </td> <td> <p align="center"> 10.3 (Nov 2021 on Nov 2020) </p> </td> <td> <p align="center"> not more than 5 (Dec 2021 on Dec 2020) </p> </td> </tr> <tr> <td> <p> Belarus’ international reserves growth by the IMF’s SDDS, billion US dollars </p> </td> <td> <p align="center"> 8.469 </p> </td> <td> <p align="center"> at least 6 </p> </td> </tr> <tr> <td> <p> Growth in broad money supply since early 2018, % (intermediary target of monetary policy) </p> </td> <td> <p align="center"> +3.2 (Nov 2021 on Nov 2020) </p> </td> <td> <p align="center"> 7-10 (Dec 2021 on Dec 2020) </p> </td> </tr> </tbody> </table> <p> * Average official exchange rate of the Belarusian ruble to foreign currencies, calculated as arithmetic average, Jan-Nov 2021 </p> <p> ** as stated in the government’s medium-term finance programme of Belarus’ republican budget, which covers the 2021-2023 period (govt resolution #227 of Apr 20, 2021) </p> <p> *** raised by 0.75 percentage points to 9.25% on Jul 21, 2021 </p> <p>   </p> <p> Growth in fixed-term deposits slows down in November </p> <p>   </p> <p> By abolishing the caps on foreign currency deposit rates in June 2021, the National Bank managed to halt negative trends in the savings process. In September and October the growth of fixed-term deposits was seen not only in national currency deposits, but also in FX deposits. However, in November, under the influence of fluctuations in the exchange rate of the Belarusian ruble and increased sanctions pressure, the growth of time deposits slowed down. </p> <p>   </p> <p> According to the National Bank, the balance of fixed-term deposits of individuals in foreign currency with banks in November remained virtually unchanged compared to the previous month (minus $0.3 million) after the growth of $20.4 million and $26.5 million in September and October, respectively (+0.5% and +0.7%). Personal fixed-term and conditional deposits in foreign currency amounted to $3.941bn as of 1 December 2021. </p> <p>   </p> <p> In November 2021 the balances in personal transferable FX accounts (mainly card accounts) increased by $10.6m, or 0.9% per month, to $1.194bn as of 1 December 2021. </p> <p>   </p> <p> The balances of fixed-term and conditional deposits in Belarusian rubles in November increased by 1.6% to reach Br5.017bn as of 1 December 2021. In September and October, the increase was more intensive - 2.6% and 2.2%, respectively. </p> <p>   </p> <p> The balance of transferable deposits (mainly salary card accounts) at the beginning of December 2021 stood at Br3.049 billion, down 5.7% month on month. </p> <p>   </p> <p> Thus, despite the measures taken by the National Bank and the increase in interest rates, the savings behaviour of Belarusians remains extremely cautious. At the same time, it should be noted that some “deposit enthusiasts” consider the current rates acceptable and are ready to take risks for the sake of higher income. </p> <p>   </p> <p> Corporate credit overburden prevents National Bank fr om raising key rate </p> <p>   </p> <p> On 17 December 2021, the Bank of Russia Board of Directors decided to increase the key rate by 100 b.p. to 8.50% per annum citing high inflation. </p> <p>   </p> <p> “The contribution of persistent factors to inflation remains considerable on the back of faster growth in demand relative to output expansion capacity. In this environment, given rising inflation expectations, the balance of risks for inflation is markedly tilted to the upside. This may bring about a more substantial and prolonged upward deviation of inflation from the target. The Bank of Russia’s monetary policy stance is aimed to lim it this risk and return inflation to 4%,” the Bank of Russia statement said. </p> <p>   </p> <p> The Belarusian regulator has not raised the refinancing rate since the summer. The probable reason for the National Bank’s lack of response to rising inflation is credit overburden of enterprises in the real sector. According to Belstat, during January-October 2021, Belarusian companies transferred Br68.497 billion (26.7% of revenues) to repay bank loans, which is 14.9% more than in the same period last year. </p> <p>   </p> <p> In other words, the Belarusian National Bank has to manoeuvre between its desire to raise the interest rate and the need to support the real sector. </p> <p>   </p> <p> Meanwhile, consumer inflation slowed to some extent in November. According to Belstat, annual inflation amounted to 10.3% in November against 10.5% in October 2021 with the initial official projection for the whole of 2021 at 5%. At the same time the refinancing rate is still below inflation at the moment and stands at 9.25% per annum. It was last increased by 0.75 p.p. on 21 July 2021. </p> <p>   </p> <p> Thus, despite restrained lending policies, banks support the real sector through lower interest rates on loans already issued (when loans are issued, their value is often linked to the refinancing rate). </p> <p>   </p> <p> According to the National Bank, the average rate on new fixed-term deposits of individuals and legal entities in Belarusian rubles in November 2021 was 9.32% per annum against 10.69% a month earlier and 13.96% in November 2020. As for the new Br-denominated loans (excluding soft loans and interbank loans), they amounted to 13.50%, 13.46% and 10.80% per annum, respectively. </p> <p>   </p> <p> The decline in the average rate on new deposits could be due to the reduced demand for ruble liquidity in the market - due to the tightening of credit policy of commercial banks and due to the National Bank’s effective operations to regulate money supply in the market. </p> <p>   </p> <p> The average rate on overnight loans in the interbank market continued to fall in October 2021, remaining significantly below the rate of inflation. According to the National Bank, it stood at 1.25% per annum in November compared with 2.17% a month earlier and 12.22% in November 2020. </p> <p>   </p> <p> Manipulation of liquidity by the National Bank contributes to restraining the growth of money supply, which should be a limiting factor for inflation. For instance, broad money supply in November increased year on year by only 3.2%, while the forecast range for the end of the current year was 7-10%. However, a month earlier the year-on-year increase was 1.7%, thus the volume of money in the economy has been increasing in recent months which may indicate a relaxation of the regulator’s policy. </p> <p>   </p> <p> This trend may intensify in the near future. At a meeting on social and economic development on 3 December 2021, President Alexander Lukashenko spoke not only about reducing inflation, but also about the need to support economic growth, including through monetary policy measures. It is highly likely that pressure on the National Bank to relax its monetary policy will increase in the coming year. </p> <p>   </p> <p> Meanwhile, the pace of lending to the corporate sector remains subdued. According to the National Bank, commercial banks’ corporate credit portfolio as of 1 December 2021 amounted to Br68.232bn, up 1.8% YTD. </p> <p>   </p> <p> The total value of banks’ loans to non-financial institutions (real sector) amounted to Br47.748 billion as of 1 December 2021, up 0.9% YTD (+2.1% in November). This includes loans to public non-financial institutions in the amount of Br22.879 billion, down by 5.1% in Jan-Nov 2021, loans to private institutions - Br24.869 billion (+7.2%). The positive dynamics of loans to the non-financial sector may indicate its greater solvency and, consequently, attractiveness for banks. </p> <p>   </p> <p> Banks’ personal credit portfolio amounted to Br16.681 billion as of 1 December 2021, up 4.9% YTD. Banks’ loans to other financial institutions in January-November 2021 decreased by 0.2% to Br3.804 billion in equivalent as of 1 December 2021. </p> <p>   </p> <p> Reserve assets hover at $8.5bn, foreign exchange market balanced </p> <p>   </p> <p> In November the National Bank had to spend some of its reserves. Belarus’ international reserve assets fell by $80.7m (or 0.9% month on month) in November, following an increase of $89.8m (or 1.1% month on month) in October. </p> <p>   </p> <p> “November’s decrease in the level of international reserve assets was mainly due to the government’s scheduled repayment of foreign and domestic liabilities in foreign currency in the amount of about $275m,” the National Bank said. </p> <p>   </p> <p> “The purchase of foreign currency by the National Bank at the Belarusian Currency and Stock Exchange, the inflow of foreign currency into the budget, as well as an increase in the value of monetary gold, contributed to sustaining the level of the country’s reserves,” the National Bank said. </p> <p>   </p> <p> As a result, Belarus’ international reserve assets have increased by more than $1 billion, or 13.4%, since early 2021, totalling $8.469 billion as of 1 Dec 2021, with the approved forecast of at least $6 billion as of 1 January 2022. Given that the government and the National Bank have some $200 million of foreign and domestic liabilities to repay in Dec 2021, meeting the forecast parameter for international reserves does not look strained. </p> <p>   </p> <p> By the end of 2022, the authorities have set a target to keep the level of foreign exchange reserves at no less than $7bn. In other words, the National Bank does not rule out a possibility that FX reserves may reduce by about $1.5bn from the current level. Such pessimistic sentiments may be due to the sanctions pressure on Belarus and the resulting difficulties in attracting foreign loans. </p> <p>   </p> <p> The domestic FX market in November can be described as balanced. According to the National Bank, the total net demand for foreign currency in that month was a modest $8m against a net supply of $550.6m in October. </p> <p>   </p> <p> Overall, in Jan-Nov 2021, in all segments of the domestic foreign exchange market FX sales exceeded FX purchases by $1.484bn. In January-November 2020, the situation was reversed: the net demand for foreign currency due to the March collapse of the Russian ruble, followed by the Belarusian ruble, and the August events in the country, triggered by the presidential election, was $1.457bn. </p> <p>   </p> <p> The main demand for FX in November was secured by legal entities, which bought $102.8m on a net basis against net sales of $307.4m a month earlier. In turn, individuals remained net sellers for the fifth consecutive month, having provided net inflows to the foreign exchange market of $76.6m against $78.5m in October. </p> <p>   </p> <p> Authorities plan no changes in 2022 monetary policy </p> <p>   </p> <p> Based on the approved Monetary Policy Guidelines for 2022, it can be concluded that the authorities do not intend to make any major changes to the current system. At the same time, the statements of the authorities suggest that the risks of increased non-market credit to the economy may intensify in the coming year. At the same time, the development and signing of a new programme with the EFSD, which could include concrete measures to prevent an increase in directed lending, would help curb the lending appetite of the agro-industrial lobby. </p> <p>   </p> <p> Among the possible risks for the monetary sector next year is an increased inflationary environment in the global economy, which raises doubts about the possibility of slowing down inflationary processes inside the country without a significant tightening of monetary policy. In addition, the banking sector in Belarus will continue to be adversely affected by sanctions, which makes Belarusian banks unattractive partners for foreign companies and creates difficulties in making payments. </p> <p>   </p> <p> PrimePress Business Analysis Agency </p> <p>   </p>

2021-12-31

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