Belarus on Friday raised its refinancing rate 5 percent to 35 percent a year, the 10th increase in 2011, in a move to stabilize the currency market and dampen inflation.
Belarus is a leader in the refinancing rate set by the National Bank of Belarus, the country's central bank. Earlier this year, prior to the first increase, the refinancing rate was 10.5 percent.
Nadezhda Ermakova, chairman of the national bank, said this month that there was still room for an increase of the refinancing rate.
"Basically, today the refinancing rate has ceased to play its role ...
The refinancing rate should be somewhat higher, at least close to inflation," she said.
The Consumer Price Index (CPI) in Belarus has increased by 74.5 percent over the first nine months of 2011, sparking concerns that the country was running an increased risk of runaway inflation.
Today, most Belarusians earn two or three times less than they did a year ago. Banks refuse fixed rates on deposits, people began to withdraw their savings and buy goods as a reserve, and companies switched to foreign currency payments.
The national bank has tried to convince people to keep their Belarusian rubles, but the cash-strapped government cannot do much to help restore people's confidence in the national currency.
By the end of May, the central bank had cut almost by half the value of the Belarusian ruble against the U.S. dollar.
Stanislav Bogdankevich, former head of the Belarusian National Bank, said that without decisive action, the foreign exchange rate of Belarusian ruble would continue to decline.
"The declining of the national currency will be followed by galloping price increases, both in the consumer and other markets. Belarusian economy strongly depends on imports, which prices will keep on rising. Recession ... is also possible," Bogdankevich said.
Last week, Belarus asked Russia to postpone payments for natural gas from 2011 to 2012.
Earlier this week, the government asked Belarus' five most profitable national companies to transfer part of their profits to the National Development Fund, money that is due to be paid only at the end of the year.
In September, Standard & Poor's rating agency lowered Belarus' sovereign credit rating to B-/C from B/B with a negative outlook.
The downgrade reflects concerns over Belarus' ongoing dependence on external funding due to a large current account deficit and a very low level of usable reserves, said the rating agency.