Focus FX Currency Forecast
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6 Septembrie 2011 |
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RAIFFEISEN BANK S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
011857 Bucureşti, Sector 1
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+40-21-306.10.00
+40-21-306.15.54
Fax
+40-21-230.07.00
Website
www.raiffeisen.ro
EUR/BYR: 7317 - 12200 (December)
USD/BYR: 5186 - 9000 (December)
In Belarus, partial liberalisation of the FX market beginning from mid-September will lead to sharp overshooting of the USD/BYR rate from USD/BYR 5,100 to up to 10,000 – 11,000, but we do not rule out some subsequent strengthening in Q4, back to a level of USD/BYR 9,000.
During the last two months another sharp slide in the unofficial BYR rates put pressure on the central bank to end the stalemate on the foreign exchange market. By now, the unofficial USD/BYR rate on the cash market has reached a level around 8,500 and off-shore quotations are as high as 9,000-10,000. The (official) foreign exchange market has almost ceased to exist in recent months, due to the prevailing regulations only to use the official rate with some minor deviations and the fact that the central bank did not support the official rate by FX reserve sales. The official rate is simply set by the central bank at a non-market clearing level, i.e. FX holders are not willing to sell at an artificially low rate of around USD/BYR 5,100, given the widespread devaluation expectations. Therefore, at the end of August, President Lukashenko announced the introduction of a demand and supply driven (second) session at the currency exchange. This “free floating” of the rouble would be added to a first session, where exporters are obliged to sell 30% of export proceeds at the official rate. Thus, Belarus will not completely liberalise the FX market, but will stick to multiple exchange rates. The crucial difference is that the formerly unofficial FX rates are incorporated into the official system. This, so hope the authorities, will improve transparency, liquidity and confidence in the zaichik (“bunny”), as the Belarusian rouble is sometimes called by locals.
Will it work? It is difficult to tell as many of the technical details related to the “second session” have still not been determined by the central bank. For example, it is not clear who will have the right to participate in the session. The central bank has not made clear, if it will back BYR by any means, e.g. FX reserves.
We see the danger of a large disequilibrium upon introduction of the trading session for two reasons: first, as the FX market was very illiquid in recent months, there is a large demand backlog, e.g. among the population and importers; secondly, supply will be limited by the fact that major (state-owned) export companies are parts of conglomerate-like ministries, which will continue to distribute FX internally without use of the FX market. This will lead to a considerable weakening of BYR above the level of today’s unofficial rates, perhaps to USD/BYR 10,000-11,000.
