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National Bank does not lower refinance rate because it is afraid of dollarization of deposits, expert says

The National Bank of Belarus (NBB) does not lower its base refinance rate because it is afraid that the holders of rubel deposits will switch to US dollars, a representative of a commercial bank told BelaPAN.

The National Bank may even raise the refinance rate to prevent the dollarization of bank deposits, the spokesman said.

In the fall of 2012, deposit-holders began to convert their savings into dollars amid growing fears of another devaluation of the national currency. As a result, the National Bank stopped lowering its refinance rate in the third quarter of 2012, and commercial banks started raising their interest rates on rubels deposits.

This past February, the National Bank began lowering the refinance rate, making rubel deposits less profitable. The weakening of the rubel against the US dollar since the latter half of June has also affected the profitability of such deposits.

On July 10, the National Bank announced that it would not lower its refinance rate in July. The NBB explained that maintaining a tight monetary policy was expedient amid a “seasonal” increase in the population’s demand for foreign currency.

The most recent decrease in the refinance rate occurred on June 10, when it was lowered to 23.5 percent.