Belarusian ruble is doomed to devaluation

Experts predict inevitable devaluation of the Belarusian ruble.

According to National Bank, since the beginning of the year the ruble have fallen against dollar and euro by 12,93 and 2,45 percent relatively. As national welfare is measured in dollar equivalent, so 19 percent rise against the Russian ruble since the beginning of 2014 can’t allay fears about the Belarusian ruble’s devaluation, reports Deutsche Welle.

Since the early 2000s Belarus has had a malpractice to act not under the notion of national currency, states Aliaksandr Chubryk, the Head of IPM Research Centre. The authorities make forecasts in the US currency, the citizens save money with a careful eye to the ruble’s fall against dollar, basket currency is not mentioned at all.

However, Vadzim Iasub, financial analyst of the official partner of “Alpari” in Minsk, says that with the absence of additional shocking factors, affecting the devaluation of the Russian ruble or euro against dollar, in perspective the Belarusian ruble will lose value against a basket currency too.

The reasons of downfall

<>Anton Baltachko, economic expert, explains that in fact the National Bank manages the dollar. It systematically devalues the ruble against dollar. However, negative current account is the main reason for the ruble devaluation.

Belarus spends more currency then it gets from abroad. Demand is outgrowing supply. Due to borrowing operations cover the difference is possible so it provides a smooth ruble’s fall, says Vadzim Iasub. He predicts further ruble’s deterioration as there are no suppositions for turnaround.

Since the beginning of the year the Belarusian ruble has got 19 percent rise against the Russian one.

The deficiency of hard currency in the country indicates that the Belarusian ruble by the third quarter of 2014 is 20-30 percent overestimated against dollar, considers Aliaksandr Chubryk, the Head of IPM Research Center.

As matters stand, he continues, domestic goods are rising in price and imported ones are getting more attractive so that causes the accumulation of misbalance. The ruble devalues to deskew at the foreign exchange market. That is the key cause of the national currency's deterioration against the dollar, expert points out.

Deterioration behavior and companion problems

Vadzim Iasub emphasizes that the specific feature of the formation of the Belarusian ruble is a strict peg to the US dollar, and Minsk’s exchange rate policy is to gradually weaken, a little more than a percent per month, the national currency against the US dollar. According to Iasub, the ruble’s deterioration schedule against dollar is almost perfect straight line.

If we consider the dynamics of the Belarusian ruble against the currencies of major trading partners, it turns out that it is getting stronger that creates additional problems for the Belarusian exports, says Iasub. However, according to Aliaksandr Chubryk, over the interests of exporters, the authorities give preference to preserve stability and trust not in the national currency, but to the given rate of ruble's devaluation against dollar.

Expert predicts that under the present National Bank current policy, the rate of ruble's devaluation may have a long term character; up to approximation to the equilibrium rate, that allows Minsk to dispose of the current account misbalance. Anton Baltachko says that the National Bank's defined frameworks will be saved, as the main task is not to let the ruble lose its positions as fast as it happened in 2011 when its rate against hard currencies had almost triple fall.

Where is the edge?

According to Iasub, the topic on the Belarusian ruble’s fall edge is hardly correct. Main points disturbing experts are: what if the slow temp of the Belarusian ruble’s fall is connected with the present situation in Russia and whether falling tempos remain or will grow.

Vadzim Iasub emphasizes that the topic on the Belarusian ruble’s fall edge is valid in case of a free-floating exchange regime. Analysts claim that it is the necessary shoking therapy on the way to establish the balance in system. According to Anton Baltachko, Minsk authorities are aware of social discontent because of free-floating exchange regime accounts, such as: sudden ruble’s devaluation, problems in banking system, the growth of external public debt on a percentage of GDP (gross domestic product).

Furthermore, the expert points out that the foreign exchange market reform only is senseless. At free-floating exchange regime the investment and monetary policy also require modifications, but the authorities are not ready even for it. There only remains for them to gradually devalue the ruble and to seek money for it, and for the people, not knowing way about ins and outs of economic analysis, keep savings in different currencies, summed up Anton Baltachko.