Launch of inflation targeting conditional on macroeconomic stability - IMF

<p> MINSK, Dec 21 - PrimePress. A changeover to an inflation targeting regime in Belarus should be made conditional on macroeconomic stability, reads the staff concluding statement of the 2021 Article IV mission of the International Monetary Fund (IMF). </p> <p>   </p> <p> As previously reported, led by mission chief for Belarus Cheikh Gueye, an Article IV mission of the International Monetary Fund (IMF) operate in a virtual mode fr om 29 Nov to 17 Dec to make a traditional annual overview of Belarus’ economy. The mission conducted online meetings with representatives of Belarus’ economic bodies, the National Bank and experts. Since 2015, the National Bank of Belarus (NBB) has been pursuing a monetary targeting policy with an eventual switch to inflation targeting. In late November 2021, the National Bank said that it considers it necessary to switch to inflation targeting as soon as possible. </p> <p>   </p> <p> “The objective of targeting medium-term inflation is fundamentally sound, and the work on strengthening supporting conditions should continue . In order to ensure that such a shift in the monetary policy regime delivers low and stable inflation, the ongoing work should be intensified, to: (i) strengthen forecasting and policy making, (ii) entrench confidence in central bank independence, (iii) improve communication, inter alia by announcing and holding regular meeting of the NBB Board, and (iv) establish the policy rate as the primary instrument and its transmission to market rates. The launch of the new policy regime should be made conditional on macroeconomic stability—which will help to reduce dollarization—and progress in establishing appropriate conditions, particularly aligning real wage growth with productivity developments and more firmly anchoring inflation expectations.” </p> <p>   </p> <p> IMF experts say monetary policy will need to accomplish a difficult balancing act so as to preserve NBB credibility. “Taking into account the weak baseline outlook and the substantial risks facing the economy, monetary policy needs to find a careful balance between—on the one hand—gradual inflation reduction, strengthening public confidence and moderating inflation expectations, and—on the other hand—supporting growth. This challenge is made all the harder by the high degree of dollarization in the economy.” </p> <p>   </p> <p> IMF experts believe nominal exchange rate flexibility should be maintained to buffer the external shocks that are hitting the economy, but disorderly adjustments need to be avoided. Allowing the exchange rate to adjust in 2020 helped avoid a widening of external imbalances and preserved much-needed international currency reserves. </p> <p>   </p> <p> “The authorities would be well advised to continue with this policy, limiting exchange rate intervention to instances wh ere an otherwise disorderly depreciation would undercut confidence in the currency. Looking further ahead, dollarized balance sheets and external debt call for building up foreign currency reserves as external conditions improve. Following the Fund’s SDR allocation—which the authorities plan to keep in reserves—foreign currency reserves presently remain stable at a relatively low level of US$8.5 billion (2.3 months of imports). This will need to be supported with policies that maintain low and stable inflation and address structural impediments to external competitiveness.” </p> <p>   </p> <p> As previously reported, inflation in Belarus in November 2021 stood at 0.5%, January-November - 9%. In November 2021, consumer prices rose by 10.3% year on year; January- November 2021 - by 9.4%. The government’s 2021 inflation target is 5% or less. Since 21 July 2021, the National Bank’s refinancing rate has been at 9.25%. </p> <p>   </p> <p> Belarus has been a member of the IMF since 1992. In 2009-2010, the IMF stand-by programme was implemented, under which Belarus received a loan of $3.46 billion. In April 2020, Belarus requested $940 million from the IMF as part of the rapid financing instrument to deal with the impact of the pandemic coronavirus. The request was rejected because of disagreements over the non-financial conditions of the allocation. </p> <p>   </p> <p> On 23 Aug 2021 as a result of the IMF general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion, Belarus was awarded a 0.14% quota - an SDR equivalent of about $925 million. The SDR allocation was intended to boost global liquidity amid the coronavirus pandemic. End </p> <p>   </p>

2021-12-22

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