Expert: Banks to hike consumption lending rates to 40 percent p.a.

The National Bank of Belarus says inflation is likely to reach 15 percent against 8 percent forecasted by the government. Independent experts suggest the current pricing growth will make Belarusians buy less, while consumption lending is to become inaccessible.

With this level of inflation, banks will be forced to raise interest rates up to 40 percent in order insures risks, economist Yaraslau Ramanchuk says in an interview with the European Radio for Belarus.

“Interest rates are affected by inflation. I think that inflation will grow up to 20 percent towards the year’s end. I think the interest rate will jump to 40 percent, because there is a risk to lose money due to the price growth. Banks will definitely try to insure themselves by adding this anti-inflation margin into the cost of money”.

Economist Leanid Zlotnikau is confident if the interest rate goes up to this level, lending will go down and people will consume less.

“Anyway, belts will have to be pulled in. People will start buying and borrowing less”.

The same applies to the neighboring countries.

“Neither Belarus nor Russia will be able to resist. In Poland, prices will grow faster than before. Foodstuff prices started soaring in the second half of 2007. In Lithuania, prices jumped by 5-6 percent annually. This is a lot for them, because inflation used to hover around 0.5-1 percent or even in the negative territory.

In Russia, the government set the inflation target at 8 percent, but they will also end up with 14-15 percent annually. The cost of raw materials is soaring around the world, thus pushing up the prices of steel, cotton, etc.”

If banks want to secure themselves, they have to make the money expensive. This applies not only to economies in transition. Yaraslau Ramanchuk recalls Sweden where the Central Bank raised the interest rate up to 500 percent. As a result, Swedish kronor collapsed and the gross domestic product dropped 6 percent.

Today, even the Central Bank of Europe is forced to raise the interest rate.

Ramanchuk: “… because inflation in the Euro zone amounts to 3.5-4 percent. This is much more than the Central Bank of Europe forecasted. This is significantly less than in Belarus, but we are saying that inflation in the Euro zone was to be less than 2 percent…”

The European Radio for Belarus called Belznesheconombank in order to try to get a loan. This reporter was told that Br 5 million at 18 percent per annum was a maximum of what could be borrowed. A bank staff answered briefly regarding a possible rise on the interest rate.

“It was raised in May 2008. How can we raise it more? It used to be 17.5 percent”.