Strange things happened in August-September on the Belarusian Currency and Stock Exchange. In the first half of August, the supply of foreign currency increased sharply on the stock exchange, which led to a fall in the rates of major currencies traded on the BCSE. But after the end of the tax payments period, the rates began to rise, which ended only on September 6.
If you look at the dynamics of the Belarusian ruble (BYN) exchange rate this year until August, you can see another oddity. The dollar and euro exchange rates on the BCSE declined until August, while the currencies of developing countries have become cheaper against the dollar due to capital outflow from these countries or due to currency wars. By weakening the national currencies, the central banks of these countries supported their exporters. At the same time, Belarus behaved as if it was not a developing country, but a powerful economic power, not in need of exchange rate support of its economy.
Foreign trade disrupts plans
If we compare these two strange things, everything will be in its place: until mid-August the National Bank conducted the exchange rate policy in accordance with the current situation in the domestic market, where the supply of foreign currency exceeds the demand, mainly due to the sales of hard currencies by individuals, not business. In connection with which the National Bank bought up an excess of supply. At the same time, it regulated the market in such a way that a moderate strengthening of the ruble was observed in order to reduce the attractiveness of foreign currency savings.
At the same time, the exchange rate did not have any stimulating or overwhelming impact on exports and imports, at least on average. Such a conclusion can be made by comparing the balance of foreign trade in goods and services for the first half of the current year with that of the previous year. Thus, this year the balance amounted to $309.8 million, while last year – $430.3 million. At the same time, the balance in trade in goods fell to minus $1,504.6 million with minus $1,257.6 million in the first half of 2018. But this reduction was compensated by the growth of exports of services.
The situation, as we can see, has become a little worse this year. But this has an excuse – the volume of supplies and re-exports of oil products from the Russian Federation to the Republic of Belarus decreased, as well as the volume of oil refining decreased due to the supply of low-quality oil from the Russian Federation. Therefore, we can say that the monetary policy of the National Bank was neutral in relation to foreign trade – it neither did not interfere with, nor did not help.
Thus, we can assume that the foreign trade of Belarus is currently in about the same condition as last year. At the same time, this year the government planned to ensure the GDP growth by 4%, and this was supposed to be done mainly by increasing exports. But this is obviously not possible, and the GDP growth rate in January-July was only 1.3%. The government, however, expects that the situation will improve in the coming months, in particular, the Belarusian oil refineries will be able to compensate for the decline in production that occurred in the summer of this year.
Exporters need support, but do not receive it
Despite such hopes, it would be natural to support Belarusian exporters with the ruble devaluation. So, this seems to have happened.
This assumption was confirmed by the meeting of the President of Belarus when discussing issues of the Belarusian economy development held on September 4th. At the meeting, Alexander Lukashenko said that the main task of the government is to fulfill the plans for the country’s economic development in all areas in 2019. He said nothing about the GDP growth rate, although this is the main parameter of the plan.
In addition, Alexander Lukashenko stressed that the main task is to diversify the markets for Belarusian goods, without losing profitability, and noted that the country is moving in this direction, but very slowly. As you know, the government has set a goal to conquer the markets of third countries outside Europe so that Russia, Europe and the rest of the countries account for about a third of the country’s exports.
And that’s where the importance of exchange rate policy comes in. The fact is that as a result of trade and currency wars in the world market, the currencies of these very third countries have become significantly cheaper not only against the dollar, but also against the Belarusian ruble. That is, the competitiveness of Belarusian goods in the markets of other countries has sharply decreased.
It turned out that the exchange rate policy of the National Bank, which is neutral in relation to foreign trade of the Republic of Belarus as a whole, in relation to foreign trade with third countries is a deterrent because it prevents exports.
The obstacle is pretty serious. For example, the exchange rate of the Chinese renminbi declined by 5.9% from the beginning of this year to September 5. And this is after the correction (or collapse as some said) of the ruble exchange rate, which occurred in late August – early September. For many other countries, the situation has become much worse. Thus, the exchange rate of the Turkish lira fell by 10.1% during this period of time. This reduces the competitiveness of Belarusian goods in these markets and reduces the revenue of Belarusian exporters. Of course, this analysis should take into account the growth of prices in the domestic markets of various countries, which can compensate for the devaluation effect, but this growth, as a rule, lags behind the rate of change in exchange rates.
The situation is similar to that of China and Turkey, as well, with the exchange rate of most other countries. However, the situation has improved against the Russian ruble as a result of the correction, and its exchange rate has increased by 2.6% since the beginning of the year. And the Ukraine’s hryvnia rose by 0.8%. But this does not change the situation with respect to third countries.
Forecast: BYN should become cheaper
Thus, the exchange rate policy in Belarus was not aimed at supporting the conquest of emerging markets, even in China. It is very likely that the top management of many Belarusian enterprises discovered this unfortunate fact and decided to correct the behavior of the National Bank. And it is this correction that we are seeing.
It is possible that instead of the National Bank, it is done by a market maker – a large bank that has decided to regulate the ruble rate itself or on someone else’s instructions. This means that the Belarusian ruble may now behave like the currencies of other developing countries, i.e. follow the fluctuations of these currencies in the Forex market.
Further depreciation of the ruble is quite likely. It’s difficult to say to what extent, as it’s not known yet, to what extent the authorities or market-makers will be guided by the currencies of which countries in the implementation of this correction. The yuan is a likely candidate for this role. After all, it is the Chinese market that Belarus is going to conquer in the first place, and if the ruble is going to strengthen against the yuan, it won’t happen. But there may be also an orientation to the ruble, the hryvnia, or a basket of such currencies.
The described reason for the events is, of course, hypothetical; other options are also possible. Apparently, the situation will become clearer in the next couple of months, and it will be possible to draw a conclusion as to whether similar events will still occur in Belarus in the future.