OREANDA-NEWS. The Board of Directors of the International Monetary Fund (IMF) recommends that Belarus should scale back interventions in the foreign exchange market in support of the Belarusian ruble, and adopt a tighter monetary stance, the IMF said in materials published Monday following Fifth Post-Program Monitoring Discussions.

The IMF points out that scaling back interventions in the foreign exchange market would help narrow external imbalances and safeguard official reserves.

In addition to scaling back interventions Belarus should raise the refinancing rate in order to contain inflationary pressures and prevent exchange rate overshooting.

Furthermore, the NBB should stand ready to tighten further if needed to prevent exchange rate overshooting.

The NBB argued that monetary tightening would do little to contain demand or inflation, the IMF said. “The authorities conceded that high domestic deposit rates provided support for the rubel. But with monetary transmission weak in the context of the high volume of subsidized and directed lending, the NBB believed that further changes in policy rates would have a limited effect on lending and inflation expectations.”

In this context, the National Bank of Belarus agreed to consider the IMF staff recommendation to move to base-money targeting.