Crisis-hit Belarus raises interest rates to 18 percent

Belarus said Thursday it would raise its main interest rate by another 2.0 percentage points to 18 percent to battle the worst economic crisis in its post-Soviet history. The hike, which goes into effect on June 22, is the second in just over two weeks, a span that has seen rates rise by 4.0 percentage points.
The National Bank of Belarus said the rates were being raised to boost the attraction of local currency investments and "strengthen the protection of Belarus ruble bank deposits against inflationary processes." It gave no indication if or when rates may be raised again, noting only that the bank would "continue pursuing a balanced interest rate policy".
Consumers have been hoarding basic food products and besieging exchange points for hard currency amid fears that the currency will lose value further and inflation will spiral. The former Soviet republic's annual inflation rate reached 20.2 percent for the first five months of the year, with the government warning that the figure may rise to 39 percent by the end of the year.
The crisis grew out of a massive trade imbalance sparked when Russia hiked the price it charges for Belarus energy shipments. The nation of 10 million has few natural resources and relies heavily on Russia natural gas and other basic imports.
Its finances were hit further when President Alexander Lukashenko boosted state salaries and issued cheap credits ahead of his re-election last year. The resulting hard currency shortage prompted the government to introduce artificial exchange rates, with the Belarus ruble now exchanged at 5,000 to the dollar at state institutions and around 8,000 to the dollar on the street.
The crisis prompted Lukashenko to call for international assistance, with Russia refusing to provide direct lending to its neighbour because of its continuing failure to implement market reforms. Earlier this month, Belarus did receive a $3.0 billion loan commitment from and economic group of Russia and former Soviet states, which will be issued on condition Minsk sells off its biggest state assets.
Belarus has thus far announced no formal privatisation programme but still expects to receive the first $800 million payment this month. Lukashenko's government has also sought up to $8.0 billion in assistance from the International Monetary Fund, although a fund mission left Minsk earlier this month without saying anything about potential help.
Russia's Finance Minister Alexei Kudrin on Thursday criticised some of the recent economic steps taken by Lukashenko, saying that artificial prices "may lead to more shortages". "Nevertheless, we hope that in the coming months and weeks, additional stabilisation measures are taken. Our loan will provide the basis for this stabilisation," Interfax quoted Kudrin as saying.