National Bank of Belarus Sharply Increased the Refinancing Rate

What does this mean for ordinary citizens of the country?

Today, July 21, the refinancing rate in Belarus increases - the National Bank made such a decision last week, on the 15th.

The rate will rise immediately by 0.75%: from 8.5% to 9.25%. This increase is a very large leap, and it is the second one this year: in April, the rate had already increased from 7.75% to 8.5%.

Interestingly, in the previous five years, the refinancing rate only fell: in 2016 - 4 lowering, in 2017 - 8 lowering, in 2018 and 2019 - 2 lowering, in 2020 - 3 lowering. Since January 2015, when the rate was raised for the last time (to 25%), it has fallen to a record low of 7,75% by July 2020.

The maximum rate was fixed in December 1994: 480%. Most often, the size of the rate changed in 2011: 12 times, and always upwards.

Thus, now, after raising the rate to the level of 9.25%, there will be a rollback to approximately the state of summer-autumn 2019, when the size of the refinancing rate was 9-9.5%.

The refinancing rate is an indicator of how much money is in the country, Minsk-Novosti explains. It determines the rate at which the central bank of the country can lend to commercial banks, if necessary, and the latter, in turn, to the borrowers.

Rate regulation is a kind of forecast of the National Bank for the future of the economy. If the rate goes down, it means that the country's main bank is confident that the economy is doing well. If it rises, there are certain difficulties, for example, inflation has increased. Once a quarter, experts revise their decision and adjust it taking into account the financial and economic situation.

The regulator explains its decision by the acceleration of the annual growth rate of consumer prices, which began at the end of 2020. It continued in the second quarter of 2021. The rise in prices for energy resources, building materials, and food in the world markets has intensified due to the expansion of consumer demand.

Increased inflationary expectations have become an additional factor supporting the intensive rise in prices in Belarus. As predicted by the National Bank, by the end of the third quarter, annual inflation in Belarus will not exceed June indicators. In December 2021, the annual increase in consumer prices is estimated at about 9%. However, inflation in annual terms will approach 6% only by the end of 2022, according to the National Bank.

Vadzim Iasub, a senior analyst at Alpari Eurasia, explained:

- But our refinancing rate is used for directive lending to unprofitable state enterprises. The rates on such loans are, according to some formula, tied to the refinancing rate. Accordingly, its growth would mean an increase in interest rates on loans for these state-owned enterprises. And they are, to put it mildly, not able to service their loans, this burden is regularly borne by the budget.

Vadzim Iasub says that, as a result, a paradox arose: on the one hand, it needs to be increased to combat inflation, and, on the other hand, given the situation in which inefficient state enterprises with loans are in debt, it should not be raised.