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4 Nov 2015

Belarus’ central bank to switch to inflation targeting by 2020

MINSK, 4 November (BelTA) – The National Bank of the Republic of Belarus intends to switch to inflation targeting by 2020, BelTA learned from Dmitry Kalechits, Deputy Chairman of the Board of the National Bank of the Republic of Belarus, during the conference Belarus Economy: At a Tipping Point.

The NBRB representative said: “In the next few years we plan to make the transition to inflation targeting as the importance of the interest rate channel rises. The interest rate, the interest rate policy will be the key instruments in the process.” In his words, the refinancing rate should be the basic instrument for regulating interest rates on the monetary market. The refinancing rate should be the foundation for setting interest rates on deposits and loans.

Dmitry Kalechits stated that in order to make the transition to inflation targeting a number of conditions have to be met, including those meant to make the interest rate channel more important. “There are distorting elements, let’s say, structural elements in our economic system. They are primarily related to the scale of state regulation of economic processes, administrative pricing, changes in principles of the state redistribution of financial resources,” explained the official. Dmitry Kalechits noted that as a whole these factors make the monetary policy less effective, particularly the usage of interest rates as an important instrument of the monetary policy.

The NBRB representative also mentioned efforts to reduce the reliance on U.S. dollars in the economy, bank loans and deposits as an important component. “At present assets of the banking industry heavily rely on U.S. dollars. The fact greatly diminishes the effect of the interest rate channel, our interest rate signals, this is why changes in this area will be a priority for us as far as reforms are concerned,” Dmitry Kalechits explained.

Apart from that, a sufficient degree of financial stability is needed to allow the monetary policy to target specific inflation figures.

Dmitry Kalechits also mentioned the development of financial markets as an important element. Financial markets need to be developed to allow the monetary policy to rely on market instruments. The monetary policy should not be complicated due to the weakness of the financial market’s infrastructure.

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