Belarus is raising its main interest rate by 2.0 percentage points to 16 percent to battle soaring inflation and a falling local currency that threaten a massive economic crisis, the central bank said Monday. Loose fiscal policies and the failure to narrow one of the biggest current account deficits in the world have plunged resource-poor Belarus into serious economic trouble and raised fears of a full scale meltdown.
The hike, which will take effect on Wednesday, is aimed at increasing the value of investments in Belarussian rubles and protecting ruble savings from inflation, the bank said. "The decision took into account the continued growth in consumer prices and high inflation expectations," it said in a statement. Consumers have been hoarding basic food products and besieging exchange points for hard currency as they fear the Belarussian ruble will lose value further and inflation will spiral.
Deputy Economy Minister Andrei Tur warned last week that inflation could reach 39 percent by the end of the year, after the authorities devalued the ruble by 36 percent in an effort to combat the crisis. On May 11, the bank hiked rates by one percentage point but it clearly believes now that more radical monetary moves are needed.