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Head of Belarus' National Bank about inflation targets and de-dollarization of economy

Chairman of the National Bank of Belarus was among the senators and discussed socio-economic development plans of the country. During the discussion, he was asked about a recent banking innovation. From 1 April, Belarusians who place money on a bank deposit for a short period will have to pay tax. How did depositors react to this? We asked Pavel Kallaur and he answered much wider, touching on the whole history of the problem, starting from January 2016, when the Belarusian ruble experienced a significant devaluation.

Yuri Koziyatko:
On April 1, the National Bank introduced a tax on interest income. Has the structure of bank deposits changed somehow since then?

Pavel Kallaur, chairman of the National Bank of the Republic of Belarus:
As for the effect of this decree on the behavior of savers, it is exaggerated. In January, people withdrew money from deposits in Belarusian rubles. And that month, the devaluation against the dollar was more than 15%. You know the mentality of our people, not only ordinary Belarusians, but also businessmen, who count everything in U.S. dollars… They quickly counted what interest rates deposits in Belarusian rubles should have in order to preserve the same level of income as in dollar terms. To free you from counting I will tell you that the interest rate should have been at least 150%. But gradually, this factor has lost significance and in March, we already recorded growth in deposits in Belarusian rubles. It is small, somewhere around BYR 450 billion. But in any case, we must remember that interest rates on deposits have decreased.
The most fundamental factor that makes investors choose foreign currencies as a means of saving is devaluation and inflation. And to date, 75% of deposits are in foreign currency. The task of the authorities, including the National Bank, is to restore confidence in the national currency. And it will be possible only if we really stick to figures we outlined, in particular, in terms of inflation. Because it is through inflation that the purchasing power of the national currency is preserved. And then we will see a U-turn in the de-dollarization process.

Yuri Koziyatko, host of "Picture of the World":
In many countries, low deposit rates stimulate investors to put money into economic activity, not simply in bank deposits. Can the National Bank and other banks apply certain measures to encourage depositors to convert bank deposits into equity?

Pavel Kallaur:
In order to offer people to invest in stocks, rather than deposits, we need to work very hard with the real sector of the economy. First, we need them to switch to international financial reporting standards. Second, we need them to be profitable. And the income or dividends they will have to pay needs to be higher than interest on deposits. Alas, you cannot do it by administrative means. We need to create appropriate conditions. And, again, no matter how long we walk around the various issues, we will still return to one starting point. Without a long period of low inflation, there is nothing we can do.

Mikhail Myasnikovich, Chairman of the Council of the Republic of the National Assembly of the Republic of Belarus:
The thing is that when this period comes to an end, we can face a situation when there will be no enterprises remaining. Why does Mr Koziyatko raise this question? Today, the interest on deposits is the most attractive. No corporation can guarantee such gains. So, maybe, we will have to place the corresponding bond issue? What remains to be done? After all, we do need to go through this difficult path in order to attract people's funds into equity.

Pavel Kallaur, Chairman of the National Bank of Belarus