Belarus Economic Update - Local Currency Under Pressure

Heightened political uncertainty has translated into pressure on the Belarusian ruble, which has retreated to new lows against the dollar. To support the exchange rate, the National Bank of Belarus (NBB) has tightened local liquidity and intervened more actively in the FX market. However, taking into account the government's limited FX reserves and high upcoming debt repayments, such support for the local currency is unlikely to be significant. We also think that the inflationary pressure from the local currency's depreciation will lead the NBB to tighten monetary policy. > Banks see outflow of deposits and elevated demand for FX, though the situation looks manageable at this stage. The ongoing political crisis in Belarus has affected the local currency and the situation in the money market. After stabilizing in June-July, the Belarusian ruble came under renewed pressure this month and has lost almost 8% over the last week. According to local news media, the Belarusian banking sector is seeing an outflow of deposits and increased demand for hard currency. While the situation is still manageable for most banks right now, if things continue like this for an extended period (or the outflow intensifies), the stability of the sector could be undermined. Most of the FX demand is coming from the population, as corporate demand mostly comes from state-owned enterprises and is regulated by the government. > Belarusian ruble reaches new lows against dollar and euro. Yet in real terms, the effective exchange rate is still stronger than it was at the beginning of 2018, when the currency followed the Russian ruble lower. Though the National Bank does not disclose volumes of its FX operations, we believe they have risen based on daily FX turnover, which has increased from an average of $50-70 mln to $120-140 mln in recent days.