Comments of the Board of the National Bank to the Decision to Maintain the Refinance Rate at the Current LevelOn September 19, 2018, the Board of the National Bank took a decision to maintain the refinance rate and the interest rates on the liquidity regulation transactions at the current levels.
This decision was taken by the Members of the Board with account of the forecasted dynamics of inflation and the impact of external and domestic factors thereon, as well as the need to maintain inflation close to the target of 5% set for 2019-2020.
The Belarusian economy is being developed under the conditions of worsened external situation. The current situation in Russia is an important factor thereto, primarily, due to expanded trade restrictions and the policy of sanctions against it. Intensification of capital outflow and considerable depreciation of the Russian ruble are observed, that will be the factor leading to acceleration of inflationary processes in Russia.
The degree of uncertainty with regard to further development of situation in the global financial markets and geopolitical situation has grown. Due to the escalation of trade wars, there are risks of slowing down of the growth rates of the economies of the other countries being main trade partners and intensification of fluctuations in the financial markets.
Materialization of external risks may bring about the pressure on inflation and increase inflationary expectations in Belarus.
The inflation in Belarus is maintained at the level of the target value for 2019-2020. In August 2018, the growth of consumer prices in annual terms totaled 5%, having increased compared with the previous months (4.1% in June and July 2018). The growth of the administratively regulated prices was the factor of increase in the general level of prices, including the tariffs on communication services, retail prices for fuel and tobacco products.
The core inflation in August 2018 went up to 3.3%, mainly, under the impact of market factors (growth of prices for poultry meat and pork). A certain acceleration thereof by the end of the year is forecasted, which is related to both the preservation of above-mentioned market factors and increase in prices for imported goods and services under the influence of worsening foreign economic conditions.
It is expected, that at the end of 2018 inflation will total about 5.5%, in the following years – around the established target of 5%.
The economic growth is approaching the equilibrium level. The economic activity in Belarus is slowing down after the high rates of recovery growth. At the moment, consumer demand remains rather high. At the same time, the intensity of growth of consumer lending and real wages is slowing down.
In the time following, the economy growth rate is assessed as being close to the equilibrium one and, as a result, it will not make any impact (both downward and upward) on the prices. The results of population survey, which was carried out in August 2018, show the lack of significant inflationary influence of consumer activities in future and decline in the number of respondents adhered to buy goods on the instalment plan.
With a view to constraining inflationary pressure of the external sector and attaining the inflation target the maintenance of the current monetary conditions will be required. In 2018 Q3, the monetary conditions exert a disinflationary influence, primarily, at the expense of the real Belarusian ruble exchange rate dynamics. Appreciation of the Belarusian ruble, which has been accumulated since early 2018, led to a minor deviation of the Belarusian ruble real exchange rate from its equilibrium level in the direction of overassessment.
The dynamics of interest rates in the monetary market ensures the moderate growth of lending to the economy and maintenance of money supply within the planned parameters. In August 2018, the growth of average broad money supply totaled 10.8% in annual terms. On the whole, the interest rates do not led to a decline in or an acceleration of inflation.
Under these conditions, preservation of the refinance rate at the current level will lead to the maintenance of inflation at the level of 5% in the coming years.
Further decisions on changing the refinance rate will be determined by the inflation forecast, as well as by the probability and extend of manifestation of inflation risks, which constrain the attainment of the target.
The next meeting of the Board of the National Bank, at which the issue of the level of the interest rate will be considered, is scheduled for December 19, 2018.