Belarus faces devaluation from dual exchange rate policy

The Belarusian ruble could face a 20% devaluation, after the nation’s central bank announced the launch of a second foreign exchange trading session on Tuesday, in which the local ruble rate will not be regulated by the authorities.

“The National Bank is canceling its previous letter to banks on the maximum 10% deviation when setting up the Belarus ruble rate on the interbank market,” First Deputy Central Bank Chairman Nikolai Luzgin told a news conference.

The second trading session assumes the market will would determine the exchange rate on the basis of bids for foreign currency from companies. The current mechanism stipulating an obligatory sale of a third of foreign exchange revenues by exporters will remain in place.

“This means the introduction of a dual exchange rate. There is a fixed exchange rate which can be used only by companies which buy drugs and pay for Russian gas. For other companies, this means devaluation,” VTB Capital analyst Alexei Moiseev told RIA Novosti, noting the Belarusian currency could weaken 20% or even more.

The Belarusian ruble has come under pressure because of a large trade deficit, generous wage increases and loans granted by the government ahead of last December’s presidential polls, when President Alexander Lukashenko won his fourth term. The central bank’s foreign exchange reserves fell 20 percent in the first two months of this year to $4 billion due to the trade deficit.

Belarus hopes to eventually unify the two exchange rates as Minsk is seeking financial aid from Russia, which wants to see a comprehensive economic stabilization plan before extending bailout loans to Belarus.

On Saturday, Lukashenko promised to balance the currency market and introduce budget austerity measures within a few days.

Uralsib investment bank analyst Alexei Devyatov said Belarus should go for a full-blown devaluation which would benefit the economy.

“A dual exchange rate has never brought anything good. It makes economic development more difficult as companies which can exchange currency at the official rate get benefits. This creates incentives for shadow activities,” he said.

He also said that exporters would benefit from a full-scale devaluation by boosting exports and foreign exchange revenues.

“Belarus will lose nothing … one has to acknowledge a fait accompli,” he added.

MINSK, April 19 (RIA Novosti) 

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