Experts Recorded Three Bad Signs For Belarusian Financial Situation

Inflation is gaining momentum and there are not enough instruments to counter it.

This is happening against the background of deteriorating liquidity in foreign currencies and the weakened lending activity of banks.

These are some of the conclusions drawn by experts of the BEROC Economic Research Center, reports thinktanks.by.

Controlling Inflation is Getting Harder and Harder

Inflation is accelerating and, according to experts, this process "is becoming a new sustainable trend". One of the main reasons is the growth of problems in the monetary sphere. These problems include the persistence of high inflationary expectations of the population, as a result of which the net purchase of foreign currency by individuals and the outflow of their foreign currency deposits have become steady.

The increase of inflation is also affected by the intensification of problems in related spheres. In particular, we are talking about the deteriorating conditions of oil supplies, which are pushing up domestic fuel prices. The budget deficit is growing, and this creates preconditions for accelerated growth in a number of administratively regulated prices. In addition, the inflationary pressure associated with rising of prices for many goods and services on the global market is becoming more and more obvious.

The policy, conducted by the National Bank today, may soon become insufficient to curb the inflation. "The National Bank, staying committed to targeting the money supply, focuses on managing its volume. At the same time, the National Bank frequently shirks the proper use of a more powerful instrument such as the interest rate, its attempts to influence the expectations of economic agents, and the promotion of institutional measures necessary to ensure price stability. Under the conditions of multiplying inflation risks, this approach, as well as exploiting the National Bank's beloved image of a fighter against monetary expansion, becomes insufficient to combat inflation effectively," the newsletter says.

The State of Foreign Currency Liquidity is Worsening

Another disturbing trend is the continuing deterioration in foreign currency liquidity, caused both by the outflow of funds from foreign currency deposits and limited access to foreign loans.

According to experts, "this raises concerns that the sustainability of the trend may lead, sooner or later, to financial destabilization. Compared to the situation in 2015-2016 (the period of lows in the relevant indicators), the margin of safety still seems quite significant. However, unlike that period, the liquidity in foreign currency is now weakening not suddenly because of external shocks, but progressively because of internal reasons". The bulletin says that there is little hope for economic policy measures as a factor in stabilizing liquidity in foreign currency, as "the room for maneuver is narrow, and the priorities of the authorities do not inspire confidence and optimism".

Lending Activity Remains Weakened

The National Bank's restrictive measures with regard to the volume of liquidity injections and interest rates in the credit and deposit market, as well as unfavorable situation with liabilities, lead to limited credit activity of banks. "In this situation, banks, which are not guided by directive regulations, prefer to "dry up" their portfolios. In most cases this leads to a situation where banks refocus on maintaining the current level of credit debt and avoid its expansion," the bulletin says.