Page 33 - BELRptFeb19

Amongst the reasons for the expected hike were:
i) rising inflation expectations; ii) close negative GDP gap/strengthened domestic demand; iii) challenging external environment; and iv) relatively ambitious inflation target for 2019.
The NBRB decided to leave the key rate unchanged at 10%, though it highlighted that pro-inflationary risks had, basically, increased. However, the regulator sees the effect of these factors as temporary, while current CPI is running below the 6% target for this year (the NBRB forecasts YE inflation at 5.5% y/y).
Bankers believe the latter was the key reason behind the hold decision, but in the near term, they say it is more likely than not that monetary policy in Belarus will be tightened. However, the official economic forecast used for fiscal planning assumes unchanged key rate over 2019.
Among pro-inflationary factors, the NBRB mentioned the increased uncertainty over the global growth – and particularly in trading partner nations (Russia, namely).
The regulator believes that the external environment increases the risks of heightened inflation expectations and greater FX volatility. Specifically, the NBRB highlighted that acceleration of inflation in Russia and VAT.
On the domestic front, the NBRB thinks the economy is growing at levels close to potential, while the strong gains in domestic demand will moderate in the medium term. The regulator believes that future wage growth will be in line with productivity increases, so its effect on inflation would be neutral.
The NBRB described monetary conditions as neutral: its thinking is that the current level of the policy rate is appropriate to keep the growth of money supply and the expansion of lending at the neutral level for the stability of domestic prices. In November 2018, monetary supply growth was 9.3% y/y, which is close to the lower bond of the 9-12 y/y target range. However, we highlight that in previous years, the monetary base expanded at levels visibly below the target.
Finally, the NBRB mentioned the acceleration of running inflation, but attributed this to the effect of temporary factors, which regulator believes will dissipate in 2019. Nevertheless, the NBRB believes inflation is going to increase further at the beginning of 2019.
Belarus' refinancing rate will make up 9-10% by the end of 2019 given there are no external shocks, Chairman of the Board of the National Bank of the Republic of Belarus Pavel Kallaur told the media on 20 December, BelTA has learned. Interest rates on new loans will be kept within 10-11,25% per annum. As for the exchange of the Belarusian ruble in 2019, Pavel Kallaur stressed that it would be fair.
The National Bank of Belarus (NBB) intends to cut its benchmark interest rate to 14-16% by the end of 2017 , its deputy chairman Sergei Kalechit said on October 4.
33 BELARUS Country Report February 2019 www.intellinews.com