National Bank sees no grounds for sharp refinance rate cut, deputy head says

The National Bank of Belarus (NBB) sees no "fundamental grounds" for sharply lowering its base refinance rate, NBB Deputy Chairperson Syarhey Dubkow told reporters in Minsk on May 15, BelaPAN said.

Earlier this month, Deputy Prime Minister Uladzimir Syamashka suggested drastically reducing the base refinance rate in the second quarter of the year, a measure that would make loans more affordable for businesses.

A further reduction in the base refinance rate will depend on inflation and at what pace its slows down, Mr. Dubkow said. "If inflation in our country is 19 to 22 percent, the refinance rate will be 20 to 23 percent," he noted.

"Banks are interested to issue loans, but lending money does not mean giving money and not getting them back. Banks use not their own resources but the resources of their clients and shareholders. That's why it's not correct now to provide loans without thinking how to have them repaid," Mr. Dubkow said.

He suggested that economic entities must increase their profits, reduce their dependence on energy and raw materials and boost exports, while the banking sector "is just a reflection of the economy's real sector." "Interest rates in an economy reflect the situation in the economy. It is the economy, economic entities that must generate money and enterprises must develop in the first place through their own resources, while a loan is just assistance," Mr. Dubkow said.

Speaking on May 11, Mr. Syamashka suggested that the refinance rate could be lowered to 25 or even 22 percent.

The finance ministry should look for additional public funds to be able to compensate the country's banks for part of the interest on loans following a reduction in the refinance rate, said the vice premier.

“Annual interest rates on loans denominated in the national currency exceed 45 percent, making them prohibitive for businesses; demand for them is low,” said Mr. Syamashka, emphasizing the need to stimulate business activity in the country.

At present, companies have to rely on foreign loans to meet their performance targets and carry out investment projects, while many business development projects initially designed to be funded through Belarusian-rubel loans have been frozen or revised in respect to their funding source, said Mr. Syamashka.

Meanwhile, he said, the banking sector has currently enough resources to support companies.

The NBB will lower its base refinance rate from 36 to 34 percent on May 16.