Inflation targeting (2010)

The project titled „The analytical and technical support of monetary policy aimed at assuring macroeconomic stabilization as an essential condition to carry out market reforms in Belarus“ was implemented by CASE Belarus in 2010. The aim of the project was the analytical and technical support of National Bank of Belarus, the main institution that is responsible for monetary policy, in order to keep the macroeconomic stability both in the short- and long-term.

May – December 2010

The aim of the project was the analytical and technical support of National Bank of Belarus, the main institution that is responsible for monetary policy, in order to keep the macroeconomic stability both in the short- and long -term.

1. Three analytical papers were prepared in Russian: „Macroeconomic stabilization in Poland in 2008-2009: possible lessons for Belarus“, „Using monetary policy to smooth economic shocks in Belarus“ and „Modelling and forecasting inflation in Belarus: different approaches“;
2. Two policy papers with recommendations were prepared in Russian: „Influence of dollarization on possibilities of monetary policy in Belarus“ and „Choice of optimal rules for monetary policy in Belarus“;
3. The seminar titled „Monetary policy, inflation, and macroeconomic stability“ was held in Minsk on October 25-29, 2010. The seminar was attended by 24 participants representing Natinal Bank of Belarus, Ministry of Finance of Belarus, Ministry of Economy of Belarus.
4. Summarizing conference „Monetary policy and macroeconomic stability in Belarus“ took place on December 9, 2010 in Minsk. High level debate on monetary policy rules was attended by 43 representatives of the National Bank of Belarus, Ministry of Economy of Belarus, Ministry of Finace of Belarus, think tanks and academic researchers.

Key findings
1. Structural problems of the Belarusian economy have expanded during the world financial crisis in 2008-2009, such as: fast growing deficit of current account, macroeconomic dependence on key sectors of economy, high financial and real dollarization, low capitalization and poor development of financial sector, etc.
2. In 2009 Belarusian economy demonstrated positive GDP dynamic (unlike most countries of the world) by administrative and indirect economic policy instruments that further advanced structural problems of the economy.
3. In 2010 monetary authorities has forced the change of the main source of GDP growth from capital investments to household demand and thus putting more pressure for current account deficit growth, inflation, and public finance destabilization.
4. The current main channel of monetary policy is the exchange rate control in order to influence economic growth, export competitivness, and national currency trust.
5. The key policy proposals are the following:
i) in the short period of time main efforts should be put to suspend the internal demand growth and stabilization of public finance;
ii) in the longer run new sources of economic growth should be found related to structural changes in the economy of Belarus;
iii) structural changes in monetary policy by introducing the inflation targeting mechanism will contribute to short and long term economic stabilization by bringing down inflation spread, volatility of real percentage rates as well as  stability of currency exchange rate.

On the basis of the updated macroeconomic model optimal rules for the monetary policy in Belarus had been developed which considered both standards of contemporary monetary regimes and peculiar features of the Belarusian economy. There has been a successful public discussion on the topic of long run macroeconomic stabilization of Belarus with direct involvement of employees and managers from National Bank, as a main resposponsible body for monetary policy in Belarus. The results of the project were widely disseminated and delivered directly to decision makers in government (Ministry of Finance and the Ministry of Economy), while up to 20 represenatatives of government took part in project events.

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