TUT.BY: According to experts, lower inflation in Belarus is associated with high devaluation expectations

The slowdown of inflation, which is observed in Belarus, may be explained by the continued high devaluation expectations. This is suggested in the most recent issue of the Macroeconomic Digest published by researchers of Eurasian Development Bank (EDB). They point out that the year-on-year increase in consumer prices in Belarus went down from 17.1% in January to 11.9% in September 2015, and since Q2 it was lower than the National Bank's target of 18% stated for 2015. "Although inflation speeded up to a certain extent in September 2015, the tendency towards its slowdown in annual terms remains, even despite the accelerated depreciation of the Belarusian ruble for the second month in a row," the EDB Macroeconomic Digest suggests. EDB researchers believe that this dynamics may be associated with the continued high devaluation expectations in Belarus. "The slowdown of year-on-year inflation is probably caused by the fact that high devaluation expectations speed up the translation of the free ruble supply into foreign currencies and, thereby, slow down the growth in the ruble supply and speed up the growth in the M3 money aggregate, which includes deposits in foreign currencies," EDB researchers suggest. They state that in September 2015 the year-on-year growth in the broad M3 money aggregate was 40.7% in Belarus. The M0 and M1 aggregates also grew by 8.2% and 3.9% year- on-year, respectively. The M2 money aggregate reduced by 2.6% at the same time. "The National Bank of Belarus estimates that in Q1 2016, the impact of the exchange rate on the broad money supply will decrease significantly and it will approach the established interim benchmark," EDB researchers remind. According to BelaPAN, the draft Key Areas of the Monetary Policy for 2016, which were submitted to the government in Q3, envision the broad mass supply to increase by 16% and inflation by 12% in the next year.